Smelling blood in the water, the sharks move in
Well, that didn’t take long. Sensing with good reason that it’s now open season on struggling families at the North Carolina General Assembly, the predatory “payday lending” industry is already banging on the door on Jones Street seeking to have its parasitic industry (which was banned in the state in 2001) made legal once more in North Carolina. Senators Jerry Tillman and Clark Jenkins filed the bill yesterday and it will be formally introduced in the Senate today.
As we have reported repeatedly in this space over the years, “payday lending” is the pernicious practice of making short-term loans (typically of a week or two in length) to desperate people at effective annual interest rates of several hundred percent. The most common mechanism for making the loans is a practice that would feel familiar to any street corner loan shark — it’s called “deferred presentment.” In a typical transaction, the consumer writes a check to the payday lender (often post-dated) for, say $400, and then receives $340 in cash immediately. In return, the lender agrees not to deposit the check until the borrower’s next payday.
Of course, in many, many situations, the borrower finds him or herself short of cash again come payday and thus begins a vicious cycle of “rolled over” loans in which the borrower has quickly paid more in interest than he or she ever borrowed in the first place. Historically, payday lenders have located in and around low-income neighborhoods and military communities that are always well-stocked with poorly-paid, unsophisticated borrowers.
That the payday predators see the current political environment in North Carolina as their big chance was already forecast a couple of weeks ago when the industry anointed former House Speaker Harold Brubaker its hired gun at the General Assembly.
And, of course, as its typical lobbying shtick, the industry is already trying to anticipate consumer advocate critiques by cynically inserting a provision in the bill that purports to prohibit payday predators from lending to military families. But, of course, to include such language is to admit the inherently exploitative nature of the loans.
The bottom line: It should be an ugly fight. And given the disturbing precedents established in the opening days of the 2013 session, caring and thinking people should not get their hopes up for a positive result.