Lower income people dealing with unexpected expenses often turn to companies that offer very short-term loans. These businesses are commonly known as “payday lenders” since the loans are typically meant to last just until the next payday.
This isn’t at all a bad thing in itself, but payday lenders typically charge astronomically high fees and interest, with rates often over 100 percent per year and even has high as 900 percent, rates that would embarrass even a credit card company. Many borrowers end up unable to repay the loan entirely and have to get an extension, which costs even more money. They end up paying many times the amount they originally borrowed.
Yes, ideally, people shouldn’t get themselves into such fixes to start with, but in the real world people do, and many of these companies are there to take advantage of them. Previously this was one of he specialties of organized crime, known as loan sharking, but banks and other financial institutions appear to be out-sharking the sharks.
Some states, such as North Carolina, have tried to crack down on corrupt payday lenders, but some of them have escaped state regulations by being owned by a federally chartered national bank. The federal Consumer Financial Protection Bureau, created a few years ago to protect people from predatory lending and other dishonest practices of the big banks, had started cracking down on payday lenders, but Trump installed a new head of the organization, Mike Mulvaney, who opposes its existence. He has received a lot of campaign money from payday lenders, and has recently acted to protect them from law enforcement, including ending ongoing actions against wrongdoing by the companies.
There’s a lot more to it than I want to try to cram into one blog post, but here are some recent and relatively short articles from credible sources that describe Mulvaney’s actions and why they’re harmful to consumers:
“Under Trump Appointee, Consumer Protection Agency Seen Helping Payday Lenders” by Chris Arnold, published January 24 by National Public Radio
“Mick Mulvaney Says the Consumer Financial Protection Bureau Works for Payday Lenders, Too” by Jordan Weissman, published January 23 by Slate
“‘Legalized loan sharking’: payday loan customers recount their experiences” by Joanna Walters published January 22 by The Guardian