The payday lending industry is so worried about the Hickey-Hildebrand initiative to cap interest rates, they are threatening to take away our beer and ribs. In David Montgomery's last Sunday report, Dollar Loan Center founder and alpha shark Chuck Brennan warns of the profound cultural impact of shutting down his usury industry:
That includes "Chuck's Kegger," a new summer rock-and-roll festival starting next year in Sioux Falls. When he announced Chuck's Kegger this week, Brennan said he'd made a long-term commitment to the festival — but would change in a heartbeat if voters approve a rate cap in 2016.
"The event would end there," Brennan said. "If it isn't for the money coming in from Dollar Loan Center, there aren't these big concerts and donations. We donate every penny we get from the state of South Dakota" [David Montgomery, "Payday Loans Could Cease in South Dakota," that Sioux Falls online content experience, 2014.12.14].
(What? The state of South Dakota is giving payday lenders money? Let's knock that off right away!)
Rep. Rev. Steve Hickey knows the Bible is much clearer on the sinfulness of usury than the ills of missing out on one more kegger. Rep. Rev. Hickey responds to Brennan's empty threat appropriately:
"We will survive one less rib/keg-fest," Hickey said. "I care a lot more that that money is coming from people who can't afford chicken on their table at night. If he wants to say he's going to pull his big party away from here, I'm sorry" [Montgomery, 2014.12.14].
Heck, if South Dakota passes their initiative, I'll bet Pastor Hickey's Church at the Gate would be more than happy to have everyone over for potato soup supper and fellowship.
Cory, could you clarify the comment ,WE DONATE every
penny we get from the state of South Dakota!! thanks
I rank the payday lending industry as bottom feeders in society and dislike them as much as I do video lottery among other things that add no real value to society but will this make that much of an impact in the grand scheme of things?
Won't the industry find loopholes for their predatory financial products that can trap people financially?
Won't these consumers go to a pawn shop for a loan or use other methods for short term financial relief placing themselves at high risk in being caught in a very costly non ending financial trap?
What next? High interest car loans and jacked up car prices for those that are credit challenged? This risks increase and the profits can also. Video lottery? We opened that Pandora's box a while back? High interest credit cards for the credit challenged? Lenders that have a goal of foreclosure rather than honoring a loan and it's terms?
I hate to say this but wouldn't reaching out to vulnerable populations be more effective or promoting the ones out there already such as Lutheran or Catholic Social services for example be better to help educate people what their best financial options would be?
Some of of this topic was recently discussed on another thread, including the demographics of who uses the payday loan businesses. It is not just those with low income, or those who are obsessed with gambling who use the payday loan system.
People in a wide range of income levels consume alcohol which has its very ugly impact, yet no one is out trying to reduce the alcohol industry, or those businesses that sell alcohol.
To me this is a mark of hypocrisy. Close down a business because of its ugliness, but not close down other businesses that have their ugliness.
I think what should be done with payday loan business is what is done when women who want to have an abortion, that is, that have to wait 72 business hours (weekend hours do not count,) receive financial counseling, and provide proof that they received counseling before a payday loan can be approved.
The proof of financial counseling is effective for three months. If seek another loan after the three months, go through the same process again.
JeniW I realize there could be people from various backgrounds going to these payday loan joints as you mentioned above plus I've seen so many that live beyond their means based on wants and not needs but how far do we go? I am trying to be practical on this.
JeniW,
The booze business is another area where people in both Parties and from differing ethical traditions may find room to co-operate and bring change.
License the purchasers of alcohol.
Banks can offer a simple service which would be much better than payday loans. Simply make a short-term loan automatic on overdrafts. This was a service Chemical Bank in Rochester, NY offered over 40 years ago.
I'm unsure how I feel on this. Your one hand says the people who take these loans are not very smart and need to be saved from themselves. Your other hand says these are poor people who need to have this to pay a heating bill so we should let these capitalistic cronies keep renting money. BAH, I don't think I care either way.
OMG! Chuck's kegger will end?!?! Where will I hear April Wine or Foghat??? Oh yeah, at the indian casino in Wagner.
I'm going to start collecting absurd comments from Chuck Brennan. In the Dec 4 KELO story he said "There is fantastic legislation already in place, and very strict laws regarding these transactions."
That is just nuts and last year an Advance America exec said to us they are for reasonable regulation because SD is the Wild West as it relates to this industry.
And here in the Argus story he says: "We donate every
penny we get from the state of South Dakota."
This from the Chuckster living the rock and roll lifestyle out in Las Vegas. He does give back and I personally told him I'm not impressed. And, I told him I have a term for what I see.... Cathartic philanthropy.... Giving back some of what is ill gotten gain to make oneself and the rest of us feel better about it.
We have a FB page and it would help greatly if you'd hit like if you support this effort.... south Dakotans for Responsible Lending. Please share it on your pages. We are off to a strong start and receiving support from all sectors and from well placed influential people. We are doing the right thing.
Mr. Hickey, you should just tell these people to not take out these loans or give them better deals. I just think they are not very smart.
Check out what they are doing in Dallas. It's baloney there are not better ideas to give credit to the poor apart from fleecing them... http://m.bizjournals.com/dallas/blog/morning_call/2014/11/city-of-dallas-unveils-affordable-payday-lending.html?r=full
Douglas, my credit union, Sioux Falls Federal, has been offering that for quite awhile but you must have good credid to open an account with them. Probably other financial institutions have the same requirements which someone who's already in financial distress won't be able to meet.
Maybe Mr. Hickey will be bringing bills for the state to do what Dallas is doing. I am not sure that is a good idea but they should debate it in the legislatures.
I suspect (without recent evidence) that many of the folks using payday lenders are "unbanked," some because they don't know any better and some because they have misused the resources the rest of us have learned to manage.
I support Steve's plan, but I don't know it will solve the problem.
Bob, I know making prostitution illegal doesn't solve the problem of slavery, but I still support the law. You are correct: we need to follow up on the Hickey-Hildebrand plan with good financial education. Give me a math class and the chance to teach exponents, and I will hit interest rates hot and heavy.
Steve, I agree: Mr. Brennan looks like he'll make for some good blogging. Keep after him!
The Dallas plan: Community Loan Centers, non-profit lending bankrolled by Citibank to compete with the payday lenders. Sounds like socialism! The article Steve links says a CLC launched in 2011 in the Rio Grande Valley... is that program working?
http://www.tccapital.org/community-loan-center-of-texas.html
First 2 years only 5% loss. Seems to be working. 18% interest as opposed to 533% for Texas payday loan.
A critical point to keep in mind when calculating interest is the cost of small loans over a short period of time will result in an abnormally high interest rate.
For example with the Community Loan Center loans, a $300 loan (average payday loan amount) taken out for one month at 18% interest with a $20 processing fee results in an interest rate of 99%. Take the same amount out for a year and while the interest rate drops to 31%, the total amount of interest increases from $25 to $52.
Also a requirement of the CLC loans is a deposit account with a bank. Free checking is usually only available to customers able to maintain a minimum amount ($1,000 to $1,500 is not unusual) which negates the need for a short term loan. Basic checking accounts will usually cost from $8-$10 @ month. Factor in an additional $120 in yearly checking account costs in the interest calculations and as the French say voilà, an interest rate of 586% on a $300 loan for 1 month.
"In the FDIC Quarterly (volume 3, issue 2), the FDIC published their report on the first four quarters of their two year pilot program to encourage banks to offer small dollar loans comparable to payday loans. The report provides ample evidence that, while FDIC considers the program a success, small dollar loans from banks cannot compete with the cost and ease of payday loans."
Oh nooooze!
"The FDIC program doesn’t save consumers any money. By offering loans over a longer period of time, interest rates in the FDIC pilot program appear lower. However, in terms of actual cost, 15 percent interest paid over a 12 month period equals $15 per $100 borrowed, similar to payday loans."
http://cfsaa.com/our-resources/short-term-credit-alternatives/small-loan-program-shows-banks-can%E2%80%99t-compete.aspx
Steve Hickey, I respect your efforts, but why is it acceptable for businesses to sell alcohol to people who are obviously poor, or the customers they know who are alcoholics, but it is not acceptable for payday loan businesses to provide a loan to those who are have low-incomes?
The ugliness of alcohol business is just as bad, or even worse than the ugliness of the payday loan businesses?
Ooops, the last sentence should read "The ugliness of the alcohol business is just as bad, or even worse than the ugliness of the payday loan businesses."
Don
If we were only talking one payday loan on the same money they wouldn't be in business. The model is build on 5-8 in a year. $1000 turns into $2500 in that year. The Dallas program is a different and more responsible product that is not a debt trap.
I'm not the only police chaplain in the state who has been to the bloody suicide scene of a person who couldn't pay a Chuck Brennan back.
Rep Hickey after you limit the cap on the PayDay Lending joints what are your plans for next year and the future? PayDay Lending is a very resourceful industry and you know they will do whatever they can to find loopholes or modify their business to still provide their "services" and be profitable after you pass a rate cap. Really it is just the tip of the iceberg. Where do you stop in this pursuit?
I look at the people who are customers of these payday loan joints and other high interest, high risk and some obviously predatory and they come from a wide socio-economic range.
Some lack a basic education on financial matters some fall into the planned debt trap/hamster wheel of these places, others due to chemical addiction, just plain irresponsibility, family tragedy or traumatic event, where I have personally seen a fairly good(for South Dakota) two income well educated household live like they are in poverty due to their addiction to video lottery.
How about our materialistic society especially here in low wage South Dakota when they for example have SUV's which they will never or rarely use to justify all the added expenses of owning one( I grew up with rear wheel drive cars and pickups here in snow country) the latest in electronics from flat screen TV to everything else, nice large house and living paycheck to paycheck with practically no savings including retirement or an emergency fund. Again! Wants vs needs.
Most of these people will do whatever they can to try to keep their heads above water and may end seeking one of one these costly short term financial relief options that could cost them dearly in the long run. Mortgage loans some being outright scams, credit cards from legit to scams, pawn shops and the list goes on. So where do you stop?
The skeptic in me sees this unfortunately as plugging a hole in a dike and other holes will open up. Financial education is key and even that will have it's limitations due to human nature.
Interesting, Mike. That's the same loss rate reported by the industry for for-profit payday lenders, according to the Consumer Financial Protection Bureau's 2013 white paper: http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf
Very well said Lynn.
We cannot treat alcoholism by limiting the number of cans/bottles of alcohol that can be sold to an individual.
We cannot cure cancer just by putting a band-aid over a malignant growth on skin.
Help people deal with their financial issues so that they can make informed decisions, and be independent.
But, in reality, I doubt that the proposed bill will be passed by the legislators. There is revenue being generated, directly or indirectly, for the state government. Just like the revenue gained for the state by people who gamble and/or those who buy and consume alcohol.
Naturally, Don Coyote cites the Community Financial Services Association of America, which is the payday lenders' euphemistically named lobbying group. Their propagandistic read of the FDIC report is baloney. Their spin that their product is more "convenient" for consumers than the FDIC's pilot program is like Don Corleone saying it's more convenient to get justice from the mob than from the police. There may be less paperwork, but you're going to get squeezed.
The CFSA complains that banks viewed the FDIC small loan program as a "a community service and opportunity to sell more profitable products." Don't payday lenders do the same thing? Aren't the defenders of payday usury saying they provide a community service? And don't those lenders build their business model on the customers they can keep coming back?
CFSA and Don then lie to us with a straight face: "By offering loans over a longer period of time, interest rates in the FDIC pilot program appear lower. However, in terms of actual cost, 15 percent interest paid over a 12 month period equals $15 per $100 borrowed, similar to payday loans."
Slowly, with enunciation: 15% interest over 12 months is less 339% over 12 months. $15 paid back over one year is less of a financial burden than $15 paid back over one month, followed by $15 the next month, and the next, and the next as we keep flipping the loan.
The FDIC program caps rates at 36% APR. Of course the CFSA is going to propagandize against it; the reputable banks can give customers a better deal and take them away from the payday lenders.
The FDIC small loan program also includes a financial education component. I'm sure that's much less convenient for consumers than just walking into Dollar Loan Center and getting cash, but it's real community service. Good financial education will actually reduce customer demand over time. The payday lending industry won't offer that service.
Read the FDIC's own, much more factual information about the small loan program here: https://www.fdic.gov/smalldollarloans/
JeniW, let Steve run the usury initiative first. Then I'll try to get him to join with me to reinstate Prohibition. :-)
Seriously, practically speaking, it will be easier to pass an interest-rate cap than a booze-sales cap. If we were going to attempt to pass some form of Prohibition, we would have to build political capital first. We'd have to run ten other initiatives first, get Steve and Steve and other allies used to working each other, then after several successes, say, "O.K., fellas, let's ban booze!"
Meanwhile, http://www.juanitajean.com/2014/01/05/because-we-are-way-too-nice-to-poor-people-in-texas/
Texas opened up the new Caesar Chavez toll road. Poor folks in El Paso with no credit cards must go to payday lender ACE to open an account to drive the new road. Which puts thousands of potential new payday lending victims in harm's way. For frosting,Goobernor Perry named William White,head of another payday lender(his company was fined 19 million bucks recently) as consumer watchdog.
Dakota could take lessons in corruption from the experts down south.
City of El Paso excluded ACE from selling toll tags. El Paso has also capped interest rates. http://newspapertree.com/articles/2014/01/22/el-paso-regional-mobility-authority-nixes-ace-cash-express-as-retail-toll-collector
Hickey & Hildebrand make Washington Post with anti-usury campaign: http://www.washingtonpost.com/blogs/govbeat/wp/2014/12/15/bipartisan-team-aims-to-curb-south-dakotas-payday-lending-industry/
Muchass gracias for the update,Cory. I stand in awe.