Are "payday" or "title" lenders predators, as alleged by social welfare proponents who demonstrated Wednesday outside the local office of a Missouri congressman?
Yes, based on the experiences of some borrowers who get caught in a vicious spiral of increasing debt.
Caveats abound.
First, no one is forced to borrow from a payday lender.
True, but as Jeanette Mott Oxford pointed out during the demonstration: "The payday loan companies are very tempting to someone who's gotten a utility disconnect notice or a rental eviction notice." She is executive director of Empower Missouri, formerly known as the Missouri Association for Social Welfare.
Second, payday lenders perform a service by providing short-term loans to borrowers who might not qualify for a conventional loan.
Yes, but social welfare groups contend the service becomes a trap when poor borrowers unable to repay the short-term loan are caught in a spiral of exorbitant interest rates and increasing debt.
Mott Oxford was among social welfare proponents who demonstrated Wednesday outside the local office of U.S. Rep. Blaine Luetkemeyer, R-St. Elizabeth.
Demonstrators adopted a "Shark Week" theme from the Discovery Channel's popular program, characterized payday lenders as predatory sharks and urged greater oversight of the industry.
Oversight of the industry is not easy to pin down.
According to Wikipedia, "some jurisdictions outlaw payday lending entirely, and some have very few restrictions on payday lenders. In the United States, the rates of these loans were formerly restricted in most states by the Uniform Small Loan Laws (USLL), with 36-40 percent APR generally the norm."
The Missouri Division of Finance referenced state statute, 408.505.3, which reads, in part, "However, no borrower shall be required to pay a total amount of accumulated interest and fees in excess of 75 percent of the initial loan amount on any single loan authorized pursuant to this section for the entire term of that loan and all renewals authorized by section 408.500 and this section."
During Wednesday's demonstration, Randy Kiser, of the faith-based group Communities Creating Opportunity, acknowledged businesses must be profitable, but added: "The problem comes in when they have 300, 400 and 500 percent interest rates in the long run, when they're making this kind of money off people who are in desperate situations anyway."
If references to interest rates ranging from 36 percent to 500 percent seem confusing, consider another passage from Wikipedia that reads: "There are many different ways to calculate annual percentage rate of a loan. Depending on which method is used, the rate calculated may differ dramatically. E.g., for a $15 charge on a $100 14-day payday loan, it could be (from the borrower's perspective) anywhere from 391 percent to 3,733 percent."
The math, an exact science, is muddled.
More clear is the inexact science of the additional distress and burden for disadvantaged people who get caught in a descending spiral of debt.
We're with Kiser and his peers. Profit is fine; usury and profiteering at the expense of poor people are despicable.
Is calculating a reasonable rate on payday loans really so elusive?