We grew up in a big city in the Midwest, so we had the opportunity to encounter may of the shady types of people one generally only sees in gangster movies.
We don’t want you to get the impression that we were “Good Fellas,” rather, that there were good and bad people in the neighborhood. And, because there were bad people, our parents made sure to tell us who we could trust and who we couldn’t.
One of those people we couldn’t trust was the local loan shark — a low-level wannabe mobster who, as long as he could collect, was pretty much left to his own devices by the real gangsters. The local loan shark acted tough but didn’t actually commit much violence because there’s no money in people who are too hurt to work.
We stayed away from the local loan shark because, as we said, our parents were adamant about not getting mixed up with people of that ilk. Besides, doubling a debt in as little as two weeks always seemed like bad business to us.
We took this walk down memory lane because loan sharking is coming back in a big way.
Although, to be fair, it’s not called loan sharking anymore — now it’s called payday loans and the Trump administration gave the green light to firms looking bilk people in need out of what little money they have.
Last week, the Trump administration rolled back regulations to protect consumers put in place by the Obama administration (which partially explains Trump’s willingness to subject citizens to predatory lending practices).
These loans are typically offered with a due date of two weeks (basically, the next payday) for the full amount plus a finance charge and services fees. If the person can’t pay the debt off, that’s OK; the loan simply gets hit with interest . . . on average a 400 percent interest rate.
You read that right, 400 percent interest — and that’s the average, which mean some of these payday lenders can charge as high as 600 or 800 percent interest. Which means if the loan isn’t paid off by that first two weeks, because of the interest compounding, it’s virtually impossible to ever pay off the loan.
Which is fine by the lender — there’s far more money to be made by a person making a minimum payment for 10, 20 or 30 years than in having the loan repaid in full.
It’s a predatory practice and it’s as evil as the neighborhood loan shark. However, thanks to payday lenders’ lobbying efforts — and funneling plenty of cash into the campaigns of politicians (usually on the Republican side but a few Democrats have been known to put a hand out as well) — loan sharking remains illegal while payday loans are not. In fact, payday lending in some states is being supported with legislation.
We would have thought that all the risky and borderline illegal lending practices we discovered as a result of the housing market collapse in 2008 would have taught us that payday loans are a recipe for economic disaster.
Unfortunately, we forgot about how easy it is to buy a politician.