In the payday loan industry can be found the full fruits of many of the political and economic evils that plague modern America. Joseph Pulitzer, founder of this newspaper (St. Louis Post-Dispatch), called it by its name 106 years ago: predatory plutocracy.
On Sunday and Monday of last week, the Post-Dispatch co-published, with ProPublica, the independent investigation journalism organization, an examination of the payday loan industry written by Paul Kiel. This editorial page has written a lot about the industry and its tactics in Missouri, but Mr. Kiel uncovered a rich bed of new sleaze.
When legislatures are full of fast-buck artists willing to allow predators to charge usurious interest rates to desperate people, when state regulators are underfunded, when Congressional Republicans gut financial regulatory reform, when the Supreme Court allows unlimited anonymous corporate campaign contributions and when the economy makes it harder and harder for the working poor to make ends meet, what you get is the payday loan industry.
And when that industry is run by people whose sense of personal morality is deeply flawed, what you have is a national disgrace.
The industry piously proclaims that it is just meeting a need for short-term credit for people who can’t qualify for it elsewhere. At 36 percent a year, they might be meeting a need. At 400 percent to 1,400 percent, they should be carrying sawed-off shotguns.
Missouri, thanks to its compliant legislature and its worst-in-the-nation campaign finance and lobbying ethics laws, has become a major hunting ground for the payday loan sharks. The average annual percentage rate on two-week payday loan in Missouri is 455 percent — 100 points higher than the national average. The average customer rolls it over 10 times a year. The signs on the stores might as well read “quicksand.”
The state is home to more than 1,400 stores offering high-interest short-term payday loans and related products like high-interest installment loans and auto title loans.
Last year, after years of getting nowhere with the legislature (a key member of the House Financial Institutions Committee had run Quik-Cash of Cabool), reformers mounted a petition effort to get a measure on the November ballot limiting interest rates to 36 percent a year. Mr. Kiel’s story details what happened next:
- An organization called Missourians for Equal Credit Opportunity popped up, funded with $2.8 million from a front group called Missourians for Responsible Government. MRG was organized as a 501© 4 “social welfare” organization under Internal Revenue Service Code. This ploy, which became common after the Supreme Court’s 2010 Citizens United “corporations are people” decision, meant it could keep its donors’ names secret. It’s safe to assume the money came from the payday loan industry.
- MECO created a bogus petition drive of its own to confuse voters. People gathering signatures for the actual reform petition found themselves hounded by paid activists. MECO filed three lawsuits trying to stop the petition drive and threatened churches who supported reform with legal action. Though churches aren’t allowed under IRS rules to take part in partisan politics, getting involved in social justice issues is part of their mission and entirely legal, though some pastors don’t know that.
- A different organization called Stand Up Missouri, which represented installment loan companies, hired two prominent African-American political figures — former Missouri PSC chairman Kelvin Simmons, who also had headed the Office of Administration for Gov. Jay Nixon, and former St. Louis city lobbyist Rodney Boyd — to run interference with the African-American community. Though nearly a quarter of the victims of predatory lenders are black, everyone has his price.
It’s true that nobody puts a gun to someone’s head to make him take out a payday loan. They might as well; some 37 percent of payday loan customers surveyed by the Pew Charitable Trust said it made no difference how high interest rates were, they needed the money.
There are many reasons for this. A lack of personal responsibility is one of them. But so is a lack of education and basic financial knowledge. So is trying to keep afloat in an economy where jobs are scarce and low-paying and the deck is stacked.
Next year, reformers plan to try again to get a 36 percent rate cap on the ballot in Missouri. It deserves full and aggressive support. As a society, we owe our fellow man better than using him as chum for sharks.
Copyright St. Louis Post-Dispatch. Reprinted with permission.