Legalized Loan Sharks

This week would be my father’s  80th birthday. I have released a new version of my best-selling book, “Son of a Son of a Gambler: Winners, Losers and What to Do When You Win the Lottery.”

If Dad was alive today, he would not be happy about the payday lending industry.

During my childhood, Northern Kentucky was a haven for organized crime. My father was a bookie and professional gambler who worked in several of the area’s “hot spots.”

In a town full of hustlers, prostitutes and gamblers, the profession they looked down on was loan sharking.

It wasn’t unusual for a loan shark to wind up floating in the Ohio River. One of the biggest names in the business, Frank “Screw” Andrews, “accidentally fell” out of a fourth floor window.

If Andrews were in business today, he would be a captain of industry. Loan sharking is now legalized, in the form of “payday lenders.”

As Gary Rivlin notes in his outstanding book, “Broke USA,” “The working poor have become big business.”

You wouldn’t think that poor people would be a growth market, but businesses make big money off people who live paycheck to paycheck.

There is a whole segment of society that does not use traditional banking services. They cash their paychecks at Walmarts, liquor stores and payday lenders.

I rented a car in a poor section of town recently. I watched the people ahead of me pay twice as much, because they did not have a credit card or debit card.

Andrews met his fate out of a hospital window in 1973. I’m sure when he fell out of that window he never dreamed that 40 years later his business would operate legally in almost every city in the country.

Andrews knew how to bribe local officials with cash payments. He didn’t live to see such bribery legalized in the form of lobbying and political fundraising.

As payday lenders and others in the poverty business have found, it is easy to stick it to poor people. They have the fewest options.

More and more of them will fall out of the traditional banking system altogether.

If you let everyone vote on the issue, payday lenders would go away quickly. A referendum on capping payday lenders at 28 percent in Ohio got 63 percent of the vote.

Most states, like Kentucky,  don’t offer ballot initiatives and referendums. They elect legislators and ask them to represent us. Dealing with legislators does not work for people fighting payday lenders.

I’ve been rooting for the “good guys” for several years. And I’ve been watching them get clobbered. It’s like watching the Harlem Globetrotters play the Washington Generals in basketball. The victories are few and far between.

There are a number of people opposed to payday lending, but they need one central leader.

Larry Diamond, who is now at Stanford, started his teaching career at Vanderbilt University. He taught social movement students, including me, a concept called the “Great Man Theory.” The thrust of what that theory espouses is that causes are only successful when they have a central leader, like a Martin Luther King or a Gandhi, to be the focal point.

People who want to stop payday lending need to have a “poster child” victim. In 1998, I was part of a group that made Kentucky the first state to have model legislation reigning in the companies that purchased structured settlement payments. It had the backing of the state’s trial lawyers and bar association. But what really “sealed the deal” was a brave young woman who had been horribly mistreated by a settlement purchasing company, who came forward to tell her story.

The day I saw her picture on the front of The Courier-Journal, I knew the battle was over. She put a human face on a back-burner issue and turned it into a front page issue. The bill passed the legislature unanimously.

I’ve yet to see an election lost on the payday lending issue. That needs to happen before elected officials will take the opponents seriously.

I can see a scenario where the issue could make or break an election, especially if a legislator got big campaign contributions from payday companies. When people wanting to get rid of payday lending get organized and vote out a couple of payday lending supporters, the rest of the legislatures will take them seriously.

Dad loved life and would be happy if he were around to celebrate. He would be happier if he were in a world where payday lenders did not exist.

Don McNay is a bestselling author and settlement planning consultant based in Kentucky and New Orleans. You can read more about him at www.donmcnay.com.