This past week I went on vacation to Las Vegas. I had never been there before, and I have never really gambled. I tried blackjack, and that was the fastest 20 bucks I ever lost. Penny slots appeared to be more my speed, and I ended up breaking even. Still, I can think of far better ways to use my money than to gamble in Vegas. When I got home I turned on the TV and started unpacking. An ad similar to the one above (a newer version for the same company) came on while I was watching a Futurama rerun.
I actually stopped what I was doing because the ad just sounded too good to be true. Apply today and you can have the money tomorrow. Not once were the interest rate or terms of the loan mentioned. Just that you could get cash quickly and easily. So I decided to check things out for myself, as you can read below.
I have taken out a loan or two in my day. One of them, about 20 years ago when I was young and did not know any better, was through a rather unscrupulous company. The sales pitch sounded really similar to the one in the ad. They would give me money so I could fix my transmission. When I signed the papers I never read the fine print, and later discovered the interest rate was 35.99 percent on that loan. Looking back I realize that it was a very expensive mistake, and one I have not made since.
When I looked up the annual percentage rate (APR) for Cash Net.com I was absolutely shocked!
A $600 loan would end up costing you $951.57. A 388.93 percent APR—I thought the 35.99 percent APR I paid some twenty years ago was bad. Of course it could be worse: According to the disclaimer on their website, the interest rate could be as high as 449 percent.
If this is not predatory lending, I don't know what is. Cash Net is not the only company to do this. Money Mutual, endorsed by Montel Williams, states on its website that the typical representative APR range is somewhere between 261 percent and 1,304 percent for a 14-day loan.
This is the free market at work—legalized loan sharking. At least with a loan shark you knew what you were getting into: You don't pay, you get a leg broken. These guys just put you in endless debt. Of course, this would not be a problem if we had a Congress that actually did something for the people it represents.
The Consumer Financial Protection Bureau can work to rein in predatory lending. However, it cannot enact a usury cap on loans. There was a time in this nation when there were usury caps on loans. Between 1945 and 1979 there was a cap set at 36 percent; however, in 1978:
The U.S. Supreme Court decided that national banks may export the state interest rate law of their home state into any state where they do business. In response, South Dakota eliminates its interest rate caps. Several credit card issuing banks move to South Dakota and operate nationally with no interest rate cap.
Removing interest-rate caps was only the beginning. In 2005 the misnamed
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed by the 109th Congress and signed into law by President George W. Bush. It was not to prevent abuse to bankruptcy laws; it was a gift to the
banking industry.
One of the primary stated purposes of the bankruptcy bill was to cut down on abusive or fraudulent uses of the bankruptcy system. As Congressman F. James Sensenbrenner Jr. (R-Wis), one of the bill's key supporters in the House, argued, "This bill will help restore responsibility and integrity to the bankruptcy system by cracking down on fraudulent, abusive, and opportunistic bankruptcy claims." Opponents of the bill argued that claims of bankruptcy abuse and fraud were wildly overblown, and that the vast majority of bankruptcies were related to medical expenses and job losses. Their arguments were bolstered by an in-depth study by Harvard University medical and legal scholars, which found that more than half of bankruptcies cited medical issues as a contributor to bankruptcy.
Sound familiar? It is the exact same argument that the GOP has used for everything that could help the average American. SNAP benefits, welfare, unemployment, Social Security, Medicare—they are all riddled with fraud and abuse, but opponents never seem to have evidence of this fraud and abuse. If you ask me, the only fraud and abuse is within the banking and payday loan industry.
If we are ever to level the playing field in this country we need to enact usury laws that cap interest rates at a reasonable level. Making some money off of lending money is one thing, but charging grossly excessive interest rates is another. Honestly, you would be better off tossing $20 in a slot machine on the floor of Caesar's Palace than you would be taking out a loan from one of these companies.