I worked at Legal Aid in the mid-1970s when a desperate single working mother, buried in payday loans, sought help.
Although small loan rates were then capped at 26.62 percent, she was charged 450 percent as a “brokerage fee.” Jack’s Brokerage was supposedly charging an astronomical “fee” for obtaining a $100 loan for her.
All the loans they obtained came from the same lender — a murky figure in El Paso, Texas. So we filed a class action against Jack’s for violating the federal Truth in Lending Act and Missouri usury laws.
After settling the case, we pushed to close the loan broker loophole. The late Rep. Karen McCarthy successfully shepherded the bill through the legislature.
The payday lenders sued. Defending the legislation, Missouri Attorney General John Ashcroft argued: “[T]he Missouri legislature could have reasonably found that businesses and others engaged in the business of arranging credit frequently extort large sums from the poor and uneducated in need of small, personal loans, i.e., those least able to protect themselves from usury, outrageous fees, adhesion contracts and unconscionable bargains.
“Further, the legislature could have found that such businesses ‘string the poor along’ from payday to payday, charging outrageous sums under the guise of fees and commissions so that the borrower is forced to borrow again and again in the hope of paying off the loan, thus creating a system of perpetual indebtedness and servitude. Further, the legislature could have found that the industry has for years been notoriously abusive of those in need of quick cash for personal purposes and that strong measures were needed.”
Upon losing that case, the predatory lenders trained their sights on the legislature. A pitch was made for legalization and regulation of payday lending.
The legalization was for real, the regulation a joke. The bill passed. Fortunately, a letter-writing campaign to then-Gov. Kit Bond resulted, to his everlasting credit, in a veto.
But with the advent of the Reagan administration, deregulation became the rage. Legal Aid lawyers, among Reagan’s most hated targets, were promptly banned from bringing class actions or lobbying. Meanwhile, payday lender campaign contributions and lobbying got another bill through. This time, the veto campaign failed.
Then-Gov. John Ashcroft, who had earlier so aptly articulated the plight of the working poor, now turned his back on them, countenancing triple-digit interest rates into law. Subsequent attempts since to scale rates back, whether by legislation or ballot initiative, have met well-heeled resistance.
As state Auditor Tom Schweich, frustrated by corruption of the 2012 ballot initiative to cap rates, bitterly complained, “The payday loan industry spreads money around Jefferson City like butter, and this is only the latest attempt to protect their 400 percent interest rate on payday loans.”
But all is not lost. The Consumer Financial Protection Bureau, created in response to reckless lending that cratered the economy, is moving to curb predatory lending. Just as in Jefferson City, lender lobbyists spread money around Washington, D.C., like butter, to bring pressure on the consumer bureau. To counter this, if you know of someone who has suffered at the hands of a predatory lender, alert your legislators and the consumer bureau.
Give them the facts they need to combat the lobbyists’ slick lies.
Dale Irwin of Kansas City is a lawyer with the law firm of Slough Connealy Irwin & Madden. To reach him, send email to firstname.lastname@example.org.