by Robert Russo
A barrage of criticism over payday lending erupted this year with the general assembly unable to resolve the issue, which the Times-Dispatch says "isolates" Virginia from the many states bringing the hammer down on this business. Jay Speer of the Virginia Poverty Law Center calls payday loans a "debt trap", the Virginia Interfaith Center for Public Policy is "invoking moral imperative" and the RTD staff writes "maybe the industry deserves to be killed, since it depends to a large extent on conning the consumer".*
As someone who has used payday loans before and been burned, I must say these words in their defense: Only those who don't need a business themselves aspire to shut it down. We all try not to stereotype, but these spokesmen are financially stable and it is this comfortable position from which they dictate. It's all well and good to want to keep people out of debt when you haven't noticed some of the rungs in the economic ladder are missing. Anyone can object to a con on moral grounds if they care nothing about those who will lose their house or job. The reason for the success of payday lending is it fills a hole between the lower and middle class, so "maybe the industry deserves to be killed" is saying "maybe all these people should be left to the wayside" so this financial gap can be maintained. Perhaps some of these sources have employees or renters who owe them money, or else they just find the payday billboards annoying as they pass by in whatever it is they drive.
These scams exist because no one else is willing to provide the service. Every business except the mom and pop country store that still gives people credit has restricted their money-handling policy to cover themselves. Employers and lenders only give out checks, which banks won't cash if it is more than the amount of the balance, check-cashing services only take checks they recognize but rental and insurance offices won't take cash. Even among payday lenders the attitude is "why would we take a risk to help you out?", and have restrictions some people can't meet (such as writing a postdated check or providing three familial contacts). There is no universal exchange; attempts like e-gold and Liberty Dollar are shot down.
A big aspect of this divide is mounting costs like rent and gas. To be middle class you have to be securely within that caste with all your ducks in a row, if just one thing slips it all topples over like dominoes. The purpose of payday lending is to bridge the most common cause of this disaster, timing. People can afford to pay their bills but the pay schedules are mismatched. Here's an idea, why don't services look up your pay schedule when you apply and match theirs to yours? (On that note why don't employers take a more direct role in our house payments and other expenses so they know exactly what we need?) Because services get the bulk of their revenue from late fees and other exorbitant charges, from utilities to moneylenders to the DMV. They don't want this to change.
Economic disparity is behind so many of our civic decisions. People rarely if ever act in someone else's interests. It sets us apart in the workplace when difficulty making ends meet reflects on our character, in politics when a volunteer, writer or speaker seems to have greater means at their disposal, even at church when the pastor makes analogies from his life. In a capitalist society financial failure is a demoralizing brand from which there is no escape, which is why the solution lies in a different system (either fulfillment without money or equality and sharing in place of the rat race).
If you the reader have faith in capitalism then hope for the financially disadvantaged lies in their luck changing. In a class system there is little market for this possibility so it is often sleazy opportunists and a black market that provide the only alternatives. Let's say a libertarian has no intention of working 9-to-5 all his life or is unwilling to lose the moral scruples a business, classroom or promotion requires of him. Internet scams are there waiting to feed his dream of living by his own rules, but if no reputable business cares about his dream then which is the bigger crock? (The legitimacy of e-currencies was questioned not because they aren't dishonest, but because they go where government-controlled currencies can't.) Would you keep trying or accept the model life and beliefs conscribed for you?
It's true that some of these critics are trying to employ compensative measures, for example the Wisconsin-based credit union Prospera was persuaded by Goodwill to found its own alternative lending service GoodMoney, to drive down outrageous rates. (An even further step would be to convince banks themselves that institutions are far more suited than the consumer to take on the burden of risk, aka everyone's money is good.) Unfortunately in Virginia some of these efforts may be naive, such as the VICPP's "Faithful Pledge" campaign. Is this a charity program to help impoverished people by pledging loans of good faith? No, it is a lobby against payday lending that "will reach people through petitions, educational events and a website".** Any church can fight poverty with its own hands, but this potentially cuts off financial means to their own members. Rev. Charles Swadley of Lakeside United Methodist Church said "We know that Jesus would never condone the charging of 390 percent interest.".** He may be right, but is Lakeside Methodist a progressive financial institution founded for the purpose of repairing this problem? You can't combat debt without facing the circumstances that require people to take on debts in the first place. How can people say they oppose poverty when they as consumers and businesses maintain this situation in the first place? "This is a moral stand, not a political campaign" their website reads.*** The trouble is it has to be a political campaign because meddling with people's source of income can hurt them. I wonder how many donations have been collected.
(This campaign supports fair lending rates and is pushing for a cap of 36% in imitation of DC's 24%. This would help borrowers everywhere except that the biggest payday lender Advance America calls it "an effective repeal of the industry".**** Whether this is true or if VICPP has any idea if better lenders will fill the hole remains to be seen.)
This debate is expected to resume in the next general assembly until reform passes. The Times-Dispatch has been providing all updates.
*http://www.inrich.com/cva/ric/search.apx.-content-articles-RTD-2007-10-05-0074.html
**http://www.inrich.com/cva/ric/search.apx.-content-articles-RTD-2007-08-24-0131.html
***http://www.faithfulpledge.org/
****http://www.inrich.com/cva/ric/search.apx.-content-articles-RTD-2007-08-24-0131.html
Question of the Week: In what part of your life have you found the disparity of success hard to ignore? How often are people's opinions determined by the fact that they haven't been there? (i.e. they don't have a relative with cancer, never had to foreclose on a house etc.) Send your thoughts to russo@richmondliberty.org.
If you have topics of interest to libertarians please let us know. We welcome your input!