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Predatory lending: There ought to be a law

Exorbitant interest schemes bilk the poor and the old

By Carlos Watson


Personal Debt
Loan Markets
Justice and Rights

PALO ALTO, California (CNN) -- There's a political scandal waiting to explode.

Recent studies from Harvard and the University of North Carolina, as well as reports from other financial experts, estimate that each year more than 10 million poor and elderly Americans are being scammed out of $50 billion in exorbitant fees and unconscionably high interest rates imposed by unscrupulous lenders.

Across the country, dishonest payday loan stores, rent-to-own centers, check cashing stores, sub-prime home mortgage companies and other "predatory lenders" are taking thousands of dollars out of the pockets of poor people in clear view of the law.

They are wreaking havoc on the country's working class, often driving grandmothers into foreclosure, military soldiers into debt and depression, and school teachers into personal bankruptcy.

Surprisingly, no national politician is holding a primetime national press conference to discuss this epidemic. In an era in which steroid use and Terry Schiavo have taken center stage in politics and the media, it is noteworthy that no senator is threatening a filibuster, and no elected official has suggested a hunger campaign to protest the injustice of predatory lending.

Where is Jimmy Stewart's courageous character from the 1939 movie, "Mr. Smith Goes to Washington," when you need him?

From Minneapolis, Minnesota, to Camden, New Jersey, those who can least afford it are being bilked out of hundreds or thousands of dollars that could be used to send their kids and grandkids to college, pay their electricity bills, buy medicine or put food on the table.

And, it is worth remembering that although many working-class Americans are getting trapped in a vicious cycle of poverty and debt, these lenders are making millions upon millions.

According to various studies, while most middle-class Americans borrow money at rates ranging from 5 to 15 percent, many poor and elderly people are being charged exorbitant fees and annualized interest rates of 50 to 100 percent -- or more -- when they buy televisions or homes, cash their paychecks or take out small loans.

The concept of high-interest loans is nothing new, but unscrupulous check cashing stores, payday loan facilities and rent-to-own facilities have grown dramatically over the last decade -- perhaps fourfold.

And significantly, it is not just corner shops in low-income neighborhoods that specialize in this practice. Indeed, New York Attorney General Eliot Spitzer recently announced that he is investigating some of the biggest names in global banking -- including Bank of America, Citigroup, Wells Fargo, and HSBC -- for steering minorities and others toward high-interest loans.

To be fair, the justification behind high interest rates is that some of these lenders are willing to step into situations where normal lenders fear to tread -- people with bad credit, few assets, or small incomes. So their risk should be compensated.

But as the studies and other investigations show, these lenders often take advantage of the elderly and poor, for example, charging a janitor who does not have a typical bank account $90 to cash her $500 biweekly paycheck.

Despite the damage that can be caused by such lending, the practice, surprisingly, has not attracted significant national political attention.

Over the last five years, about half the 50 states have enacted laws to try to limit some types of predatory lending, especially in home mortgages. Also, two bills to curtail the practice were floated by members of the U.S. House of Representatives this year, but nothing truly effective and comprehensive seems to have a chance of passing in the near future.

In a time of economic insecurity, however, the issue is ripe for discussion and debate at a national level. In fact, predatory lending -- from home buying to check cashing -- could become an effective and popular platform for politicians of various allegiances to campaign on.

It is at its core a moral and economic issue that is fit for crusading state attorneys general, conservative Christians, law-and-order Republicans, liberal Democrats, and consumer rights activists alike.

With a national message of law enforcement and populist decency, the injustices of predatory lending just might speak to that segment of the public Richard Nixon described as "the silent majority" -- both those affected and those who care.

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