Legalized Loan Sharks

| December 8, 2011

Loan SharkThe town where I grew up in 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, a central character in journalist Hank Messick’s non-fiction book, “Syndicate Wife”, “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.”

The stock of payday lenders is traded on the New York Stock Exchange and NASDAQ. Many payday lending companies do business with Wall Street’s biggest banks.

As Gary Rivlin notes in his outstanding book, Broke USA, “[T]he 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.

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 nearly forty 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.

Broke USA makes it clear that the public and those in the media don’t care for payday lenders, much the way the prostitutes and hustlers hadn’t.

Until I read Broke USA, I didn’t realize what a big hand the “too big to fail” banks have in creating the poverty industry. Many payday lenders would not exist if Wall Street had not given them the money to get started.

The banks that fund the poverty industry have another common bond.

They received bailout money from the American taxpayers in 2008.

If there was ever a shining example of why you should move your money from Wall Street, legalized loan sharking is a good one.

The people peddling poverty products have figured out there is a group of Americans who are the financial equivalent of drug addicts.

They will pay any price, fee, or interest rate as long as they can get an immediate fix. They don’t care about tomorrow. They just want money today.

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.

Gary Rivlin and I have become friends since I did a review of Broke USA for Huffington Post. We agree that payday lending is not going to go away unless the government steps up to the plate to regulate it.

Identifying the Problem

In 2006, the U.S. Department of Defense realized that soldiers had a problem with payday lenders.

It found 17 percent of all military personnel were using payday loans, and soldiers’ financial stresses were impacting their ability to function while serving overseas.

It was estimated that payday lenders were charging members of the U.S. military interest rates between 360 percent and 720 percent. Congress cut it down to a maximum of 36 percent.

Despite losing the military market, payday lenders showed they still had plenty of clout.

It would have been simple for Congress to extend that 36 percent cap to all Americans, but Congress did not.

Instead, the battle has become one each state must fight individually.

I suspect if you let everyone vote on the issue, payday lenders would go away quickly.

Unfortunately for the people fighting payday lending, most states don’t offer ballot initiatives and referendums. They elect legislators and ask them to represent us.

Many of the groups fighting payday lending are part of larger coalitions with of other legislative interests.

Fighting payday lending is merely one of many issues on their plates.

The payday lenders are all-in. It’s life or death for them. They hire the best lobbyists.

Payday lenders have a well-organized, well-financed front, and they are going to fight with everything they’ve got. They make lots of contributions to the right people.

Wealth cannot be sustained over a long period of time when the poorest of a community are exploited.

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.

Don McCay, who lives in Richmond, Ky., is an award-winning financial columnist for Huffington Post Contributor. You can learn more about him at www.donmcnay.com.

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About the Author (Author Profile)

Don McNay
Don McNay, CLU, ChFC, MSFS, CSSC is the best sellling author of the book Wealth Without Wall Street: A Main Street Guide to Making Money.

McNay is an award winning financial columnist and Huffington Post Contributor.

He is the Chairman of the Board for the McNay Settlement Group (www.mcnay.com) which provides structured settlement consulting for injury victims, lottery winners, and the families of special needs children.

McNay founded Kentucky Guardianship Administrators LLC, which assists attorneys in as conservators and setting up guardianship’s. It is nationally recognized as an administrator of Qualified Settlement (468b) funds.

Don has appeared on the CBS Evening News with Katie Couric and over 100 radio and television programs.

McNay has Master’s Degrees from Vanderbilt and the American College and is in the Eastern Kentucky University Hall of Distinguished Alumni. Don is a Quarter Century member of the Million Dollar Round Table and has four professional designations in the financial services field.

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