The title of this post seems to indicate we’ll be talking about something dangerous and sexy, but I fear I’ve still got more to say about payday and car title lending, perhaps the least sexy forms of danger on offer in these bleak times.
Whether they are an affliction upon the poor or a necessary service depends on who’s talking, but small loan providers like Advance America, QC Holdings, State Finance, Security Finance, MidWest Title Loans LoanMax are unquestionably organs of the same enormous banking institutions that taxpayers bailed out in 2009 to the tune of hundreds of billions of dollars.
JP Morgan, the same bank that in my relatively short adult life merged with Chase (which in turn swallowed Bank One, thus laying claim to all my personal wealth quite without my say-so), provides capital to such payday lenders. This is the same JP Morgan that unceremoniously told the world it lost $2 billion on the kind of trading nobody making five figures a year understands. Other major banks involved in funneling capital to payday lenders include Wells Fargo, Bank of America, et al.
Payday and car title lenders have turned this capital around and rationed out loans to those who in most cases are already well and truly mired in financial ruin. It is hard to see how somebody with any other means would be desperate or naive enough to take out a $200 loan that, over the course of two weeks, will rack up $30 in interest, as in the case of Jack Hinton of Kenney, or $450 in interest on a $150 loan over a year, as in the case of Elizabeth Marth of Decatur.
Which brings us to the title. The loans are risky for lenders, industry proponents often say. Speaking against a long-called-for 36 percent rate cap (currently rates can be as high as 400 percent in the state of Illinois), industry lobbyist Steve Brubaker said it would run the businesses out of the state.
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“You simply can’t turn the lights on in the business (with rates at 36 percent),” Brubaker said.
If they are truly risky, it is difficult to see how. Pay a visit to an Advance America in Decatur or Bloomington, or any of the other institutions, and you will see a well-oiled machine. People are approved in many cases under an hour, based on the turnover I saw. They require only a pay stub and a checking account to get started, and the company will have its money one way or another. Each loan comes with a provision allowing the loan company a fast track to garnishing borrowers’ wages if they don’t pay.
Whatever risk for the borrower seems glossed over. On the pretext of being a male bearded person, I visited a number of payday loan establishments in Bloomington and Decatur and asked whether they might give me information to take home and look at for a $500 loan (never saying at any point that I actually intended to take it out). All the friendliness the employees were showing to mothers with their brood in tow or stressed-looking couples seemed to vanish: “We don’t really print anything out here,” one person at a Security Finance in Decatur said.