Weekly Briefing

Despite all the damage, the high-cost lending industry continues to push for deregulation

Quick take: Predatory, high-cost lenders are at it again. Despite its intimate involvement with the ongoing economic crisis, the high-cost lending industry is staying true to its tradition of shameless profiteering by pushing legislation in Washington and Raleigh that would loosen the regulation of various consumer loan products. Those who care about preserving North Carolina's proud, pro-consumer traditions should pay close attention.

"Audacity," "nerve," "chutzpah," "impudence,"  "shamelessness," "unmitigated gall": No, these are not excerpts from the latest editorial page reviews of Mark Sanford, John Edwards or Sarah Palin.

These are actually just some of the descriptive terms that come to mind as one contemplates the following almost unbelievable facts:

#1 - Despite all of the horrific damage that their predatory greed has inflicted upon millions of families and the economy as a whole in recent years, the bottom-feeding, high-cost lending industry is again pushing aggressively for new laws in Raleigh and in Washington that would weaken state and federal regulation of their practices.

#2 - Some of these bills are actually being advanced by North Carolina lawmakers with moderate-to-progressive credentials.  

For the better part of a decade, of course, America's predatory lenders helped drag the U.S. and world economies into the ditch. Through the aggressive marketing of risky, doomed-to-fail high cost home loans, the lending industry and its Wall Street backers helped create the infamous "housing bubble." In so doing they transformed what had long been the foundational bedrock of the American economy into molten lava.

Today, we continue to witness and experience the after-effects of this national foray into "get rich quick," casino capitalism. Skyrocketing unemployment, record home value deflation, and empty public coffers - all stand as powerful monuments to the "vision" of a collection of snake oil selling parasites who convinced the American public to abandon common sense and embrace the absurd idea that the path to broad-based wealth was paved with huge, unaffordable consumer debt.

Lesson learned?

Fortunately, the economic collapse of the past year has at least convinced our elected officials to tune out, once and for all, the seductive siren songs of the high-cost lending lobby. No more will we have to worry that supposedly intelligent public servants will fall prey to the temptations of too-good-to-be-true promises about the benefits of lending deregulation and assuring that the poor have "access to the credit they need."

Or will we?

According to consumer advocates monitoring Congress and the North Carolina General Assembly, both institutions are actually well-stocked this year with new and nervy proposals from high-cost lenders. Here are two that deserve widespread derision and a quick trip to legislative oblivion:

"The Payday Lending Reform Act of 2009"

This bill is about "reform" in the same way that the Bush Administration's "Healthy Forests Restoration Act" was about preserving the environment. Unfortunately, as was often the case when payday lending lobby was still trolling the halls of the North Carolina General Assembly a decade ago with fat checkbooks, some members of Congress who ought to know better appear to have fallen for the industry's tired old scam - including North Carolina's Heath Shuler.

Shuler is co-sponsoring the bill along with his fellow North Carolina congressman, Patrick McHenry - always a stubborn apologist for the payday sharks during his brief tenure in the North Carolina House - and a couple of other legislators at the behest of the industry. Its overriding purpose: to assure that predatory payday loans are legal in every state in the country.

For those who may have forgotten, payday "lending" is an abusive Ponzi-like practice in which millions of consumers have become trapped in recent decades. The "loans" feature the use of post-dated checks and two-week turnarounds that end up morphing into 400 to 500% annual percentage rate loans.

Eight years ago, to its everlasting credit, the North Carolina General Assembly banned the sordid practice and kicked the payday predators out of North Carolina, thereby saving consumers hundreds of millions of dollars. In tandem with the state's 1999 anti-predatory mortgage lending law, the act marked North Carolina as a national consumer protection leader.

Now, in a remarkably reactionary act, two of the state's congressmen would reverse that action with a law that appears to preempt any state ban. According to the Shuler-McHenry bill:

"No provision of this section may be construed as preventing a State from regulating a payday loan, except that any State regulation shall not significantly interfere with the ability of a payday lender to offer a payday loan that meets the consumer protection standards in this section."    

While no one in Washington expects the bill to advance very far anytime soon, the fact that such an ambitious politician as Shuler would lend his name to it is extremely disheartening and a powerful reminder of the need for vigilance amongst consumer advocates.

"An Act to Modernize the NC Consumer Finance Act"

An equally troubling state-level cousin of the Shuler-McHenry payday bill is a bi-partisan proposal now residing in the North Carolina House Financial Institutions Committee. This bill is the latest industry effort to secure higher interest rates and less stringent regulation on so-called "consumer finance loans" - i.e. high-cost, unsecured loans (with official interest rates as high as 30 or 36% and effective rates significantly higher) of from a few hundred to a few thousand dollars. For decades, the North Carolina consumer finance industry has sought to gain the kind of lax treatment it enjoys in states like South Carolina and Nevada.

Among the provisions of the "modernization" proposal:

• A provision to allow the practice of making consumer finance loans in the same shops that make mortgage loans (North Carolina has long banned this practice to prevent $2,000 consumer finance loans from quickly evolving into larger deals that put people's homes at-risk).
• Provisions to allow larger loans, longer terms and higher rates and fees. These changes would result in effective annual loan rates in excess of 100% APR.
• A provision to allow lenders to garnish the wages of borrowers to pay back loans - something that North Carolina has always prevented for most private debt.

Like the federal payday bill, the proposal is a veritable fantasy - the "wish list" of a disgraced industry seeking to turn back the clock to a time in which it operated below the radar screen. Unfortunately for that industry, the combination of an earth-shattering economic collapse bearing its fingerprints along with modern communication and access to information should make such a return to the shadows extremely difficult.

Let's hope so anyway. If lawmakers keep their heads firmly rooted in the present, they should be able to resist even an audacious and shameless attempt to turn back the clock.  

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This entry was posted on Tuesday, July 7th, 2009 at 10:16 am and is filed under Weekly Briefing. You can follow any responses to this entry through the RSS 2.0 feed.