Payday lenders have been raking it in during the pandemic by preying on vulnerable Americans. It's time Congress did something to stop them.
Reuters
- Payday lenders have preyed upon vulnerable Americans during the pandemic and benefited from the Paycheck Protection Program.
- The payday lending industry has a known history of buying off politicians to fend off regulation.
- It's time to eliminate the corrupt influence of the predatory lending industry on our political system.
- Jonathan Schleifer is the Executive Director of The Fairness Project, a non-partisan nonprofit focused on ballot initiative campaigns.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit Business Insider's homepage for more stories.
Since the pandemic hit, the US government has fallen woefully short of providing the public with the resources they need to survive this health and economic crisis. Across the country, people are facing cuts to unemployment benefits, mass evictions, and loss of healthcare coverage, but lawmakers continue catering to corrupt industries like predatory payday lenders.
Congress is currently deliberating on a fifth COVID-19 funding package. While predatory lenders received interest-free loans in past bailouts, this time lawmakers must make sure not a penny of government aid gets into the hands of the payday lending industry.
This pandemic has highlighted what isn't working in our economy and political system, and one big problem is payday lenders who turn their profit by preying on those who are most vulnerable at their moment of greatest need. Despite being wildly unpopular, the Wall Street-backed industry continues to thrive because of its ability to exert incredible power over lawmakers.
It's time for our government to stop propping up predatory lenders preying on the most vulnerable, and focus on ensuring everyone has the financial resources they need to survive this crisis.
Short-term predatory lenders most disproportionately target low-income workers, people of color, and women. The lack of banks in largely Black and minority neighborhoods combined with discriminatory credit practices, make it hard for people of color to take out traditional loans or open credit accounts. Payday lenders have seized upon this disparity and are three times more likely to operate in Black neighborhoods than white neighborhoods.
Such lenders advertise their loans as a short-term credit option to be paid off within a few weeks, however, the typical borrower is indebted for five months. The business model of payday lenders is to bait people into short-term loans that they cannot repay with average interest rates as high as 661%.
Our current economic crisis is ripe for the predatory lending industry to sweep in and prey upon vulnerable people who have no other option to access cash, and lawmakers are doing little to stop them. While the pandemic and resulting economic crash have left millions of people in desperate need of financial support to pay bills, healthcare, and rent, payday lenders are using their political influence to increase their profit.
Lawmakers are doing little to stop predatory lenders
The Obama Administration required these lenders to ensure their customers had a proven ability to repay their loans, saving consumers from significant debt, and protecting them from predatory lenders. But these restrictions cost the payday lending industry $7 billion per year, and they have fought hard to eliminate it since Obama was in office.
Recently, the Consumer Financial Protection Bureau revised that crucial rule, freeing predatory lenders to profit as they wish. Now with these restrictions removed in the middle of an economic crisis, the agency that exists to protect consumers is making it easier for predatory lenders to trap families in a cycle of never-ending debt.
The payday lending industry has a known history of buying off politicians to fend off regulation. They are backed by hedge funds and private equity firms that make huge profits from loans that intentionally sink people into endless debt. As a result, payday and other predatory lenders have colossal financial resources to forge powerful political alliances inside Capitol Hill and block anything that threatens the industry's profits.
Open Secrets data shows that lawmakers on both sides of the aisle have been bought off by the industry. The corruption runs all the way to the top of the Trump administration.
Since the pandemic began, lawmakers have protected the payday lending industry
In April, a group of House Republicans and Democrats asked the Treasury Department and Small Business Administration to open up Paycheck Protection Program loan applications to predatory payday lenders. According to recently released data from The Treasury Department, payday lenders brought in millions of dollars from the PPP program.
This means taxpayer-funded government aid was taken away from small businesses and nonprofits that desperately need it and handed over to an exploitative industry that hands out loans they know people cannot repay. It comes as little surprise that the lawmakers who supported the distribution of PPP loans to predatory lenders are among the top recipients of lobbying money from the payday lending industry.
Lawmakers should be seeking every avenue to protect the most vulnerable, not freeing up an exploitative industry to prey upon those in desperate need of financial support during a crisis. With another stimulus bill being negotiated in Congress, it is imperative that lawmakers include provisions that prevent the payday lending industry from profiting even more.
Payday lenders will continue to exert their influence over lawmakers and prey upon people unless we continue to call out their shady practices and the craven politicians who keep serving their interests.
Though politicians can be bought off and will look the other way, voters know better. In November, Nebraskans have the opportunity to approve a payday lender interest rate cap by ballot initiative, just as Colorado did in 2018. Voters have the power to curb the power of payday lenders, and other states should follow the lead of Nebraska and Colorado.
It's time to eliminate the corrupt influence of Wall Street and the predatory lending industry on our political system. We cannot let these corrupt and predatory practices continue to fly under the radar.
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