More Important Than Lipstick, Take 3

From the NYT:

“Tracey Minda needed cash to buy clothes and school supplies for her 6-year-old son before the 2006 school year. A preschool teacher and single mother, she was broke after making her mortgage and car payments.

The quick and easy answer was a $400 loan from a payday lender. When payment was due two weeks later, she needed another loan to keep afloat. Nine months and 18 loans later, she was hundreds of dollars in debt and paying the lender about $120 in monthly fees from her $1,300 in wages.

“Once I was in the cycle for a few months, I couldn’t get out of it,” said Ms. Minda, who was on the brink of losing her car and her home in Washington Courthouse, Ohio, before turning to family members to pay off her debt.

Ohio lawmakers sought last spring to aid borrowers like Ms. Minda by capping annual interest rates for payday lenders at 28 percent, a sharp reduction from 391 percent. But lenders are fighting back in a novel way, collecting enough signatures, once certified, to force a vote in November on a ballot measure that could overturn legislation that established the rate cap.

“You can’t make a payday loan cheaper than the industry does,” said Steven Schlein, a spokesman for the Washington-based Community Financial Services Association of America, which represents lenders.”

Yet somehow, banks and credit cards remain in business. I wonder how?

According to this CBS report, there are more payday lending stores than Starbucks and MacDonalds combined. They try to get people to become repeat customers:

“A former regional manager, Jent says payday lenders train their workers to set hooks.

“Incentives that you offer to customers to get them to become repeat borrowers,” Jent said.

Like “take out five loans, get the sixth one free.” Or offering cash to managers of low-income buildings to refer desperate tenants.

And this document, obtained by CBS News reveals that among the targets for at least one payday lender are: “single-parent households with multiple children,” who are “financially stressed.””

A study (pdf) of North Carolina payday loans showed that 96% of them went to borrowers who took out more than five payday loans per year. These people are often caught in the same kind of trap as Tracey Minda: taking out loans to pay their interest, and ending up owing much more than they originally borrowed.

Personally, I think interest rates should be capped. I don’t know at what level. My instinct would be: high enough to allow lenders reasonable flexibility to address different circumstances in different ways. But to my mind, 391% a year — the average interest rate paid on payday loans in Ohio — is way, way too high to count as ‘reasonable’.

This, too, matters more than lipstick. Only one of the two candidates mentions predatory lending on his website. I might have missed something on McCain’s, though I did look; but capping interest rates on payday loans seems utterly out of keeping with McCain’s general economic philosophy.

Again: this matters to the 19 million households who take out payday loans (according to CBS.) It’s one of the things that (according to me) we ought to be thinking about as we try to decide who to vote for.