Drive down Cherry Road in Rock Hill and, within a two-mile stretch, amid the small businesses and fast food joints, you’ll see 20 or more payday loan and auto-title loan companies. You’ll find the same companies’ storefronts in Charlotte, too, but ever since North Carolina limited annual percentage rates to 36 percent, these businesses began focusing on other ways to exploit the poor, such as check cashing, sending money by wire, money orders and such. Either way, others’ hard times are being turned into good-time profits for one of America’s most disreputable “industries.” What may surprise you is where the major payday lenders get their funding. Hint: Face Uptown and look for tall buildings.
Twenty years ago, payday loan offices were a rarity. Today, they constitute a $50-billion-a-year-plus industry with more locations nationwide than McDonald’s and Burger King combined. And that doesn’t even include the vast, growing numbers of online payday loan companies, whose operations usually slip under the radar of the various states’ regulations. The payday loan industry has earned its lousy reputation by making a killing from the exploitation of others’ financial hardship, such as charging annual percentage rates of 400 percent or more. It doesn’t help the industry’s image, either, that it largely sets up shop among the poor and the young, especially near military bases and in low-income areas. Many people think of them as much seedier, and certainly more tasteless, than the more refined aura of the big banks. Is that what you think, too? Well, think again.
A study released last week by National People’s Action, an economic justice think tank, makes it very clear that the payday loan industry could not survive without help from the ostensibly more respectable “regular” banking industry. The study reveals that in today’s environment of high unemployment, foreclosures, and a critical lack of available credit for consumers and small businesses, some of America’s biggest banks, including Wells Fargo, Bank of America and Wachovia, are a pillar of what the report calls “the bottom feeders in the loan industry: payday lenders.” The big boys are offering more than $1.5 billion to the major, publicly traded payday lenders, while it’s estimated that they dole out $2.5-$3 billion to the industry as a whole.
Wells Fargo is the biggest friend of payday lenders, according to the report, financing about a third of the industry. The NPA report also singles out Bank of America and Wells Fargo for having played a major role in the success of the biggest of all payday lenders, Advance America, which runs twice as many storefronts as its closest competitor. It was Advance America’s exploitive policies, in fact, that led to North Carolina’s decision to set limits on such businesses’ APR. Even so, Bank of America and Wells Fargo/Wachovia continue to finance the company today. And why not? They’re old buddies — those banks provided Advance America nearly $50 million in credit before the company opened a single storefront.
Bank of America responded to the NPA report by stating, “We treat payday lenders as a discouraged industry,” which would be more believable if BofA wasn’t currently working with Goldman Sachs to prepare an IPO for NetSpend. What’s NetSpend? It’s a prepaid debit card company that partners with leading payday lenders and is owned by JLL Partners, which also owns ACE Cash Express, another payday loan outfit. Prepaid debit card companies charge a variety of fees to guarantee themselves a healthy profit — even an “Account Maintenance fee” in case a customer has the gall to not use the card for 90 days. That may be a step up from the raw greed of payday lending, but as far as Bank of America’s image is concerned, it’s hardly the greater sensitivity to public opinion you’d expect from a company that received $45 billion in taxpayer bailout funds.
Those same taxpayers, as well as American small businesses, are largely being booted out when they come knocking at big banks’ doors, seeking loans. That lack of credit is prolonging the country’s misery and keeping the economy near death, but BofA and Wells Fargo are happy to hand over money to the businesses that are already picking at the corpse.
John Grooms is an award-winning writer and editor, teacher, public speaker, event organizer, cultural critic, music history buff and incurable smartass. He writes the Boomer With Attitude column, news features and book reviews, and contributes daily content to the CL news blog (www.theclogblog.com).
This article appears in Sep 21-27, 2010.
Here’s an idea for putting payday lenders out of business:
LIVE WITHIN YOUR FUCKING MEANS
Big Banks in bed with payday loan companies? That’s old news.
Sad news is that Big Banking gets bailouts and God knows what other corporate welfare over the years from taxpayer dollars but provides few services for certain demographic areas. Start driving from old Eastland Mall on Central Ave towards downtown. You won’t find a single bank branch but you will find a big-assed check cashing joint at corner of Central and Eastway. Mosey on over to Cotswold area and you’ll find several banks. At one time, BoA had a mini-branch in the Cotswold Harris Teeter and right across the street had a full-service BoA. Poor and working class folks do banking too. Check out the Albemarle Road BoA on any day and you’ll find the parking lot full. I used to work as a vendor for the Bilo on Eastway Dr. Customer service was slammed with people cashing checks, getting money orders, and wiring money. Why didn’t BoA or another bank have a branch in that Bilo? This area was also sorely lacking in bank branches.
As for the commenter who says people need to “live within their means,” that’s true. However, for every spendthrift there are three others who simply don’t earn enough money to make ends meet. These folks aren’t whipping out Visa just for the hell of it. Often Visa is the only option for paying a medical or dental bill, unexpected car repair, or food and gas til the next payday. For those who don’t qualify for credit cards, payday loan places are sometimes their only option. Just because these people are in dire financial straits shouldn’t give the payday loan industry – nor any industry – the right to charge such exorbiant interest rates. Further, if Big Banking is going to get a hand from the taxpayer when it’s facing hard times, BB needs to return the favor and provide banking services for people who are facing similar situations instead of financing Big Usury, aka, the payday loan industry.
An ever-growing percentage of people are becoming more and more clueless as to how to handle money. How amazing, considering we live in a world of easy and plentiful access to information. We should be smarter, or at least smart enough to heed musicmax’s 5 word solution. And it is a solution. We should all live within our means. But even those who do that sometimes find they need to borrow money after loss of work, illness or whatever. Too late they discover the importance of good credit. Denied credit at traditional financial institutions, they seek short term solutions wherever they can which sadly and all too frequently is the payday lender. Do a budget. Have a plan. Build credit. Keep track of your checking account balance. Oh, and “live within your f*cking means.”