In what some economists are now calling a recession, many low- and middle-income Americans are turning to payday lenders, creditors who offer short-term, low-value loans to desperate consumers. The trap ? These lenders typically charge exorbitant interest rates which can trick borrowers with loans they often cannot repay. A 2006 report from the Center for Responsible Lending (CRL) found that 90% of the income generated by the payday lending industry came from fees charged to borrowers.
Steven Schlein of the Community Financial Services Association of America (CFSA), which represents the industry, insists that payday lenders only respond to consumer demand, which “has been huge and growing since the 1990s. There are currently around 24,000 stores. 2000 there were about 10,000. “Critics may consider the practice predatory, but Schlein says,” Our customers are extraordinarily satisfied. The only people complaining are a group of North Carolina consumers. [CRL] which has spread across the country. “
In an article to be published this spring in the Catholic University Law Review, Professors Christopher Peterson and Steven Graves find a surprising correlation between the geographic density of payday lenders and the political weight of conservative Christians. NEWSWEEK’s Patrick Enright spoke to Peterson, a visiting law professor at the University of Utah, about their unexpected findings. Extracts:
NEWSWEEK: What high level results have you found?
Christophe Peterson: We [mapped payday lenders] nationally, and one of the patterns that started to emerge was a great density in the Bible belt and in the western Mormon mountain, and so we started trying to find a way to think about it carefully. We also created an index that measures the political power of conservative American Christians… What is interesting and surprising to us is that we found a strong correlation between the number of payday lenders in a geographic area and political power. conservative Christians in a state. This is a surprising result for us because the natural assumption would have been to assume that given the biblical condemnation of usury, there would be aggressive regulation and less demand for payday loans in these types of states. . I think it’s ironic that we’ve actually found that the opposite tends to be true.
What are the potential explanations for the correlation?
If you’re someone who reads the Bible and takes it seriously, finding out that there are a disproportionate number of predatory lenders – usurious money changers, whatever name you want to give them – in your herd, that’s a big deal. important fact, whatever the Why. Speaking of why, our data does not attempt to create a causal explanation for this model. We are not claiming that there are more payday lenders in these states because they are conservative Christian states as opposed to poverty, race, income, [or] other potential factors …
Nonetheless, it tends to be the case that state laws in these areas are more permissive for payday loans than in some of the other parts of the country. Throughout the Bible Belt and Mormon Mountain West there is relatively little regulation of this type of loan… Clearly this is a causal factor. But in a way, that only begs the question: it’s legal there, but Why is it legal there? I don’t think anyone is going to come up with a study that answers that. It’s more a matter of political speculation, but here’s what I suspect to be part of the story: in the 80s and maybe even louder in the 90s, I think it’s fair to say that the Christian right and conservative Christians have aligned themselves with the conservative interests of big Wall Street corporations, and this has been effective in advancing a variety of issues important to conservative social values, such as the abortion debate, certain kinds of family matters and maybe gun rights – that sort of thing. But the consumer protection law and the limits on usurious money lending have been an awkward sticking point in this political alliance, so I think it has been put aside. As this alliance continued to dominate politics in these areas, the laws that protected people from loan sharks in these states withered away.
So you attribute this result in part to the connection between conservative Christians and conservative financial interests?
We think that’s probably part of the explanation. That in itself does not explain this model geographically, however… I want to be very clear on this point. I don’t want to be seen as suggesting that payday lenders are moving to these areas because conservative Christians want them more or that is the causal explanation. It is a correlation that we have seen, it is an important and important point which is facilitated by the laws of these states. That’s all we’re saying.
How does this correlation compare to other factors, such as income level?
We performed the same correlation test on the percentage of the population living below the poverty line in each geographic area and found that the correlation was stronger with our measure of the political power of conservative Christians. We also ran the same test against the percentage of the population that is not white, a kind of composite measure of minorities. And again, we found that there was a stronger correlation between the density of payday lenders and conservative Christian political power.
This is really interesting, because you would think it would be much more closely related to the level of income.
You would, right? I think part of what can prevent this is that there is a lot of poverty and racial diversity in parts of the country where this type of loan is not tolerated.
It seems that predatory lending is gaining more and more attention from lawmakers. How do you think this is taken into account, if at all? Are the states that have repressed really the ones that have to do it?
I think any state that doesn’t have traditional usury limits is going to develop a payday loan problem. It’s not so much that the states of, say, the northeast are rampant; the best way to say that states in other parts of the country have abandoned the traditional approach … In 1965 every state in the United States, the 50 states in the Union, had traditional usury limits that capped rates interest typically between 18 percent to about 42 percent per year … Over the past 15 to 20 years, many states have relaxed these limits, allowing payday lenders to enter and do business at low rates. interest of about 450 percent on average. [The industry argues that typical payday loans are for a period of two weeks, so lenders’ interest rates actually aren’t that high—only when critics extrapolate them to a full year do they seem exorbitant. A $15 charge on a $100 two-week loan, Schlein says, can be considered an interest rate of 15 percent. In accordance with the Truth in Lending Act, the CFSA’s Web site displays a map of annual interest rates in each state, from a low of 156 percent in Oregon to a high of 869 percent in Maine and Montana.]
Why have these laws been relaxed?
I think part of the explanation is that the alliance between conservatives of social values and conservatives of big business has been a big change in the balance of power when it comes to consumer protection law or the limits of wear. Once that happened, many states across the country began to deregulate, less aggressively preventing usurious lending.
Do you have the impression that there is a broader return to usury laws than we had 40 years ago?
I think the pendulum is starting to swing in that direction. For a long time we’ve only seen more and more states move towards deregulation, and I think that has a lot to do with the aggression of professional associations towards payday lenders. They are very effective political defenders. They spend a significant portion of their income on campaign finance and giveaways for lawmakers across the country, and they have effective lobbyists and public relations firms. I think this has contributed to the trend towards deregulation. But I feel like a lot of state legislatures are starting to improve, and there’s likely a tendency to start reversing some of the gains the payday lending industry has made.