Bashing Payday Lenders; Obama targets another industry that serves low-income Americans.
One irony of the Pelosi Congress's rush to punish banks and other financial institutions is that it has raised the price of credit for everyone, especially the poor. Now Democrats may hurt those same low-income earners again by limiting one of their few remaining sources of credit: payday lending.</br></br>Payday shops lend between $100 and $500 for short periods in advance of a customer's next paycheck, and President Obama added them to his list of financial villains in his State of His Re-Election address last week.</br></br>Lest you doubt this was a calculated hit, the new Consumer Financial Protection Bureau sent a note earlier this month to its email subscribers warning that payday lenders can lead consumers into "a cycle of debt." The bureau's new, recess-appointed chief Richard Cordray has since added race to the indictment, telling an audience in Birmingham, Alabama that "surveys indicate that payday borrowers are disproportionately people of color." All of this seems to be forecasting new punitive regulation.</br></br>Payday lenders charge around $15 for a two-week $100 loan to their typically high-risk borrowers, which equates to a 390% annual interest rate. Consumer groups like the liberal Center for Responsible Lending call this "predatory," but the terms are reasonable compared to an average credit-card fee, which can exceed 900%, or a bounced check fee, which can top 1,500%.</br></br>Payday lenders have around 20,000 storefronts across the country and also operate on the Internet. The industry lent $40 billion in 2010, employing more than 50,000 people and serving 19 million households, according to Stephens Inc. A 2009 Federal Reserve study concluded that "nearly all payday loan customers were aware of the finance charge of payday loans" and were "satisfied" or "somewhat satisfied" with the product.