Making Money Off the Poor

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By THOMAS B. EDSALL
September 17, 2013
A lot of people are making money off the poor. The Center for Responsible Lending, a North Carolina non-profit that tracks predatory lending practices, issued a revealing report earlier this month on payday loans, which carry annual interest rates as high as 400 percent. Using data compiled by the Consumer Financial Protection Bureau, the center found that most borrowers repeatedly rolled over or renewed loans.

The center’s analysis also found that “the median annual income of a borrower was $22,476, with an average loan amount of $350.” Most crucially, though,

the median consumer in our sample conducted 10 transactions over the 12-month period and paid a total of $458 in fees, which do not include the loan principal. One quarter of borrowers paid $781 or more in fees.

You might think these companies are making enough money from their usurious interest rates, but the center’s report makes it clear that payday lenders are dependent for profits on borrowers who take out repeated loans:

The leading payday industry trade association — the Community Financial Services Association (CFSA) — states in a recent letter to the CFPB,“n any large, mature payday loan portfolio, loans to repeat borrowers generally constitute between 70 and 90% of the portfolio, and for some lenders, even more.”

The center cites the following industry analysis, which is remarkably clear on how this scheme plays out in practice:

In a state with a $15 [fee] per $100 [loan] rate, an operator … will need a new customer to take out 4 to 5 loans before that customer becomes profitable. Indeed, Dan Feehan, C.E.O. of Cash America, remarked at a Jeffries Financial Services Conference in 2007, “[T]he theory in the business is [that] you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.” Lender marketing materials offer incentives to promote frequent loan usage, such as discounts to promote repeat borrowing.

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http://mobile.nytimes.com/blogs/opinionator/2013/09/17/making-money-off-the-poor/?from=opinion&WT.z_mob_rel=1

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1. That graph is DAMNING! nt

[adirondacker]

2. kick! nt