What is the difference between loan sharking and predatory lending? That’s a tough one. Loan sharking is still practiced today. People still get prosecuted for doing it. But there seems to be no laws against predatory lending. In fact, it is regulated by the government and supported by key politicians.
Even the names we give the practices are virtually the same. It is just that the key words are in reverse. “Lone sharking”. “Predatory lending”. Both versions of this practice provide small loans to the most desperate people who are least likely to repay them. Furthermore. These loans carry insanely high interest rates that make repayment extremely difficult, if not impossible, by the target borrower. Both routinely put their clients in the poor house. One is perfectly legal, and virtually indistinguishable from the other.
The Trap
The trap is diabolical in its simplicity. A person who needs a loan against their paycheck, will need another one on payday. The interest on such loans can be annualized at as much as 750% with two week financing. Shorter terms get even more expensive. Click here to see how the trick is done.
Escape
Alone, it is difficult to escape a well-laid trap. Fortunately, there are credit repair services that specialize in helping people out of such traps, and improving credit worthiness so as to make better alternatives possible.
The Coast profiles the travails of 52 year old Thomas Gaillard, a Canadian resident caught up in the payday loan system. He was only able to get out of the trap with the aid of a credit counselor who was able to arrange a consolidation loan from a bank. It took two years for the Gaillard family to escape.
The same type of credit repair services abound in the U.S. where victims of predatory lending find powerful allies. These firms have many tools at their disposal from debt consolidation to bankruptcy, and much in between.
Predators and Politicians
Recently, comedian John Oliver laid into the payday loan controversy by calling out the conflict of interest between industry leaders and regulatory leaders. Namely, the conflict is that they are one and the same. He pointed to a three year old debate on the Texas House floor between Rep. Gary Elkins, a Huston Republican, and state Rep, Vicki Truitt, R-Keller.
During an exchange between the two, Keller pointed out that Elkins stood to make a lot of money by blocking the legislation because he owned a payday lending chain. In doing so, she specifically used the words, “conflict of interest”. Oliver points out, however, that Keller, the self-appointed defender of the people from the evil payday loan industry, herself joined the industry as a lobbyist just 17 days after leaving office.
The apparent list of bad actors did not stop there. That chairman of the State Finance Commission, William J. White, through that position, oversees the payday loan industry in Texas. At the time, he was vice president of one of the biggest payday loan businesses in America. Oliver summed it up this way:
“So let’s just quickly break all of that down, if you were hoping to protect Texans from the payday loan industry, you would need to approach a commission overseen by the vice president of a payday loan company, and then introduce a bill into the state Legislature where the owner of 12 payday loan stores will debate the merits of the payday loan industry with one of the payday loan’s future […] lobbyists.”
Texas is not unique. There is a reason predatory lenders are so plentiful, and manage to escape all attempts at regulation.
Predators and Prey
For lending to be predatory, there has to be prey. In this case, the prey are the most powerless and desperate among us. They are the people living paycheck to paycheck, with few to no options in case something off budget comes up.
From a piece from Politics365 on the subject:
In a fact sheet on loan discrimination, the NAACP states, “subprime lending is five times more prevalent in African American than white neighborhoods.”
It gets worse. With regards to when Wells Fargo was being sued by former employees over discriminatory lending practices, they reported:
One employee said the company’s thought process when dealing with African Americans was to target them for sub-prime loans because they were “less sophisticated and intelligent and could be manipulated more easily into a sub-prime loan.” She also says elderly African Americans were “thought to be particularly vulnerable and were often targeted for subprime loans with high interest rates.”
Until our government representatives start prioritizing the welfare of the most vulnerable citizens ahead of the profits from exploitation, the aforementioned credit repair services are our best option. While they can effectively treat the problem after the fact, we must wait for a greater number of honorable politicians to bring about a cure.
