Thursday, August 25, 2011

Payday Loansharks

On Aug 14, 2011 Kansas City Star published an editorial about "Scandalous payday loan rates."  The article comments on the Missouri legislature's failure to cap lending rates. This failure encouraged petitioners to seek the passage of an interest cap law for short-term loans via statewide ballot, thus circumventing the legislature. The law would cap interest at thirty-six percent. The article mentions Missouri's abysmal track record in its recent attempts to reform lending laws and highlights that the average interest rate on payday loans last year was 444.61%. Missouri law has an irrelevant ceiling of 1950%. The article states:
"The legislature has refused for several years to take on substantive reform of the loose laws that make Missouri's payday lending industry the most plentiful and permissive in the nation. Frustrated by the legislature's inaction and an effort this year to pass a sham reform bill, a coalition of faith-based and civic groups has united to attempt to place an initiative petition on the 2012 statewide ballot."

Many have labeled payday lending legal loansharking.  Loansharking is something with which Kansas City and the Better Business Bureau have had much experience.  Missouri has had extremely soft short-term lending laws since the Constitution was rewritten and adopted in 1946. On January 7, 1947, the Kansas City Star published an article of startling similarity to their recent editorial. Its title, "The People Write the Laws," states the following:

"After almost two years the last session (of the Missouri Legislature) left unfinished business. Among other things it left the State without a reasonable law covering interest rates.  Money lenders are back with tricks and subterfuge to remind the state of the old loan shark days when a poor man's loan was a sale into perpetual bondage. The last session tried to set up an interest schedule but the governor vetoed the bill."

Under BBB manager George Husser, two attorneys, J.B. Birkhead and George Gisler, did more to fight loan sharks than probably anyone in Missouri. Birkhead was even appointed to a national committee on the subject in the sixties.  His expertise is still referenced today in the United Kingdom, Australia and even Wikipedia. These two men fought payday loan companies (Salary Buyers) and Loan Sharks when many loan sharks were controlled by the Mafia under the thumb of Nick Civella.

In 1939, the Kansas City Better Business Bureau and bar associations worked on a law that would give Missouri stricter usury laws.  This included the group called "Salary Buyers," which were nothing more than high interest lenders that claimed they were not lending money, but were, in fact, buying an employee's wages in advance--a payday loan.  The law passed, but was shortly nullified by the ratification of a new Missouri Constitution that prevented anyone from capping interest rates.

Birkhead and Gisler were appalled by the astronomical interest rates that people were forced to pay.  What were those extraordinary interest rates that salary buyers demanded?  How much did the local loan sharks charge? According to the KC BBB's 1938 year-end review, it was around 240%.  For years, during the BBB's campaign against loan sharks, this number was consistently exemplified as the most reprehensible interest rate imaginable.  It was 1710% less than Missouri's current interest cap and almost 200% less than the average modern payday loan.



Payday lending businesses hate the comparisons to loan sharks because they don't threaten physical violence to get payment.  In all honesty, neither did loan sharks back in their heyday.  They threatened to tell the borrower's employer about the situation, jeopardize his job security and ruin his reputation. That is the very reason the FTC will not let collection agencies contact a debtor's employer when asked not to.  Now, instead, payday lending companies threaten a person's credit.  Payday lenders tell borrowers that if they don't pay up, they will never be able to get a house,  a car, rent or lease anything, borrow anything. In the future, they would be denied legitimate loans for things they need. Essentially, they also threaten to ruin the borrower's reputation.

In July 2009, the St. Louis Better Business Bureau published a study detailing the weaknesses of Missouri Payday lending laws compared to other states and what detrimental effects it has on Missouri citizens. According to the study, Missouri citizens have borrowed the second highest amount of money ($317M) from payday lenders behind only California ($365M).

The debate over payday lending rages in Missouri and is likely to intensify as the petition accumulates more signatures, but the arguments really don't matter. Bottom line, virtually unrestricted payday lending does excessive harm. Whether or not payday loans are restricted, delegitimized or legally vindicated, it's a bad idea to get a payday loan. They almost guarantee financial hardship and have little-to-no benefit for the borrower--even short term.

2 comments:

  1. A coalition of faith-based and civic groups has united to attempt to place an initiative petition on the 2012 statewide ballot.payday loan

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  2. In regards to your question. My little advice is that you go to a bank in your area to request for the loan, and that is if you have a collateral, but if you want a loan from those that give out unsecured loan without a collateral i know of a loan firm that gives out unsecured loans, though he is the only one i have tried for now so i don't really know if their interest rate is the lowest. Few months ago when i had a bad credit, a friend of mine introduced me to them, inspite of my bad credit they were able to lend me a loan of $20,000 of which i used to revive my business, I think you too can do the same as well. Here is their contact information if you wish to contact them. (hai_ying43@yahoo.com)
    Regardless of your nationality, i am sure they can be of help to you.
    Good Luck,
    Della Roland.

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