It is a relief to see federal prosecutors and regulators finally cracking down on payday lenders. While the moves are past due, it is unclear if the prosecutions will be enough to deter a sleazy industry or if tough new restrictions will last.
Payday lending is simply a genial term for loansharking. Lenders make short-term loans to cash-strapped individuals at exorbitant interest rates that can top 800 percent. The high-cost loans leave borrowers, often already living on the edge, deeper in debt or even bankrupt.
Lenders have long argued that payday loans provide quick financial relief and fill a void left by banks that have pulled out of rural and inner-city markets. Lenders claim steep interest rates are necessary because many borrowers have bad credit and are a high risk.
But just as it was with the predatory mortgage loans that helped fuel the housing boom and bust, payday lending is an insidious business that preys largely on poor and working-class consumers, leaving many worse off.
That’s why it was good to see federal prosecutors bring racketeering and conspiracy charges against one of the biggest payday lenders in this region, Charles Hallinan, owner of MyNextPaycheck and more than two dozen other loan companies.
Hallinan and codefendant Wheeler K. Neff, his longtime legal counsel, are credited with developing dubious strategies that helped turn payday lending into a multibillion-dollar industry, including by partnering with sovereign American Indian tribes to evade state-imposed interest-rate caps.
Regardless of the outcome of Hallinan and Neff’s trial, the broader crackdown on payday lending has been feeble and comes late to an industry that has morphed into a financial giant.
There are now more payday loan stores in the United States than McDonald’s restaurants. Payday lenders annually make around $46 billion in loans and pocket $7 billion in fees. An estimated 12 million borrowers who lack access to credit elsewhere turn to payday lenders.
Lenders have been known to evade what little regulations exist and take advantage of desperate and unsophisticated borrowers. That’s why it was also good to see the Consumer Financial Protection Bureau impose tough new restrictions on payday lending.
The new regulations have been under development for five years. (What took so long?) They limit how much and how often customers can borrow, which is a good start. But the regulations face fierce opposition from the payday lending industry, a lobbying force that is part of the real Washington swamp.
Credit CFPB director Richard Cordray, a holdover from the Obama administration, with pushing the regulations forward even as the Trump administration is on a kamikaze mission to undo a broad array of regulations designed to protect consumers and the environment.
Cordray’s term expires next year and the payday lending regulations already face legal attack and congressional review. It is both ironic and sad that many of President Trump’s most fervent working-class supporters are the same ones hurt by unchecked payday lenders. More prosecutions and regulation are needed to stop payday lending abuses.