Chart of the day: Payday lenders’ lobbying expenditures

By Felix Salmon
March 2, 2010

A picture tells, in this case, 2,833 words:

The meat of the story, though, from Keith Epstein of the Huffington Post Investigative Fund, is well worth reading: it shows an astonishingly effective lobbying organization which has persuaded lawmakers around the country that payday lenders are both popular in their local communities and not particularly profitable.

One of the biggest payday-lender lobbyists calls itself the Community Financial Services Association; it increased its spending by 74 percent over the past year, to $2.56 million. That helps pay for people like Steven Schlein, who goes around saying things like “Who’s going to make that kind of credit available to working people besides us?”. (Answer: banks, community development credit unions, non-profit lenders, etc. And if “that kind of credit” is being extended at 650% APRs, then maybe it shouldn’t be made available at all.)

The efforts are if anything even more intense at the state level:

In Wisconsin alone, efforts to establish an interest rate ceiling of 36 percent mobilized at least 27 registered lobbyists against it.

But right now, with consumer financial protection front and center in Washington, all attention is on federal regulations. And it seems that the payday lobbyists are doing a spectacularly good job:

Rep. Luis Gutierrez (D-Ill.), chairman of the subcommittee with authority over consumer credit issues, had once advocated extending to all Americans an effective ban on payday lending for military personnel that Congress passed in 2006. By last year he had scaled back, urging an amendment that would have limited to six the number of loans a borrower could receive in a year.

Gutierrez’ less-restrictive amendment died when Democrats including Rep. Alcee Hastings (D-Fla.), threatened to vote against the entire consumer protection act if the payday provision was included. It also faced opposition from Rep. Joe Baca (D-Calif.), who countered Gutierrez with an amendment the industry regarded as favorable because it had the potential to open payday lending to new markets. Baca said in a statement last year that while “fly by night lenders” should be banned, he wanted to “ensure that students, blue collar workers, teachers, police officers and others have access to legitimate payday advance loans if needed.”

The fact is that teachers and police officers with steady and reliable paychecks should never need access to payday loans: there are always sensible credit products available which can provide them more money at a lower cost. But the payday lenders are much better than most financial institutions at providing convenience: they’re open late, they don’t go through arduous know-your-customer routines, and they’re not intimidating in the way that many banks and credit unions can be. If sensible lawmakers curtail the predatory excesses of the payday lending industry, that will help improve the financial health of millions of Americans. But it’s looking increasingly like that’s not going to happen.

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Comments
11 comments so far

Do you believe pawn loans should be outlawed as well?

Posted by TinyOne | Report as abusive

So why don’t reputable lenders eat the payday lender’s lunch? The TD Bank under my apartment is open 7 days a week—how come it isn’t in the payday lending business and charging a mere 100% interest? Most banks (and credit unions!) are amazingly customer unfriendly. I guess they need higher profit margins and good consumer banking doesn’t cut it.

Posted by leg | Report as abusive

As bad or worse than payday lenders: “loser’s loans,” otherwise known as casino credit. Should sober men in suits be issuing cash-equivalent loans to drunk, losing gamblers in a state-sanctioned, supposedly regulated industry?

Posted by JoshAxelrad | Report as abusive

When contemplating the payday loan industry, one might think that the Mafia has finally come out in the open with their loan sharking business. To do so would be incorrect. When the “corporate veil” of most payday lenders is eventually pierced, it is frequently discovered that they are controlled by the other organized crime syndicate operating in our midst know as banksters .

Posted by ClementKnorr | Report as abusive

The biggest payday lenders are actually capitalized by the big banks (e.g. Wells Fargo, JP Morgan, Bank of America, etc.). The payday lenders get big lines of credit at great rates from these banks. So the banks are already profiting from payday loans.

Posted by jcj77 | Report as abusive

Reputable lenders do credit checks. This is the micro-debt industry here, mostly profitable on the backs of poor credit risks slowly pushing them over the edge while sucking their blood all the while. Laws have been changed with regards to bankruptcy; these parasites can ride the backs of the sinking individual until they die.

And yes, bankers are behind this. Casinos have similar approaches. Corporations exist to make money; there is no morality required.

Ultimately there’s a social contract in which the govt protect its citizens with laws in exchange for agreeing to abide by the laws and have representation in making them. Wisdom of the individual is not requisite in such a contract; the govt’s purpose is to look out for the well-being of its constituents irrespective of any personal traits. If this social contract is destroyed, you risk destroying the relative stability of civilization in favor of chaos. Of course, if you comfortable with the strong trampling the weak(via power, intellect, money, strength, many different means) never question that you, yourself, are not immune to a single unprovoked attack – and that you are not immortal.

Posted by treejanitor | Report as abusive

What I question is what “we”, the “common man” can do about this. I would imagine most people are not in favor of loan shark or similar institutions.

Do “we” actually have any power to change any of this? If so, how?

Posted by treejanitor | Report as abusive

This article and its comments wind me up.

They remind me of my fellow students at Oxford, 20 years ago, who felt it should be illegal to use credit cards to buy groceries.

The fallacy behind my fellow (very smart) students is similar to the fallacy evident above. That the obvious use case for payday loans is the only use case.

Just because ‘teachers and police officers’ have ‘reliable paychecks’ does *not* mean they ‘should never need payday loans’. Why can’t:
- teachers/police officers get asked at short notice to a friends’ stag weekend? Which they need $200 of short term funds to attend?
- teachers/police officers feel OK using a facility, online (e.g. Wonga), at 1am when they complete the household finances and realise they have a 3 day cash shortage ahead of them due to the unexpected household maintenance earlier that month?
- teachers/police officers prefer to pay $25 to use a facility they have used before, instead of $15 to endure a whole new, intimidating and debasing process with a ‘respectable’ loan provider. Just because the APR is high does not mean the absolute cost of the payday loan is high.

In a free market each consumer should be able to make their own decisions without being insulted, patronised and legislated against by the high-and-mighty brigade.

Posted by wreeve | Report as abusive

I entirely agree with wreeve. No, these types of loans are not ideal and, yes, some will abuse them. But pointing to stats such as 650% APR is truly misleading. Most people only take these loans out for 1-2 weeks max., and even then for relatively small sums.

I myself took one out here in Washington D.C. shortly after I’d started work as an attorney and needed to to pay a bill before between paychecks. If I hadn’t paid the bill, it would have gone into the 30-day late period, further damaging my credit (which I was trying to rebuild). And my credit was so poor that I could not have gotten a standard bank loan.

I’m sorry, but the $50 I paid on a $450 loan for two weeks was well worth it to me.

By the way, perhaps these companies are spending so much in lobbying because their industry is much more under threat now than it was in 2001. I see no problems with them protecting themselves by explaining what it is they do to lawmakers.

Posted by kcross | Report as abusive

kcross, that’s actually wrong. In response to legislative efforts to rein in the most abusive high-cost lending practices, most of the erstwhile payday lenders have morphed into so-called “installment lenders.” These loans are typically amortized over periods ranging from 180-365 days. As such, the APR is a very good measure of price.

As for wreeve, I commend to you the following paper (unfortunately not available as a free download): http://papers.ssrn.com/sol3/papers.cfm?a bstract_id=399501

Posted by Advocate | Report as abusive

Though, it appears fairly insensitive to expend that much of sum on preserving living regular merely except for Cash 1 hour, as it is the command of occasion; each individual is subsequent the similar means.

Posted by ronalseddy | Report as abusive
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