Saturday, March 08, 2008

L.A. Times Article On Payday Loans Falls Short

It's good I suppose that Los Angeles Times writer Hector Becerra is writing today about Payday Loans, or predatory lending, but Becerra is not nearly tough enough on this sleazy business.

His article focuses on the efforts of the city of Baldwin Park, and some other California cities to restrain or get rid of these small loans, in which the annualized interest rate can run 700% or even higher. It also discusses the successful efforts of the military to rein in such loans made to military personnel near major military bases.

But Becerra scarcely mentions the worst aspects of these loans, and he spares corrupt lawmakers who have thwarted efforts to regulate them, accepting political contributions from the Pay Day lobby, from the scrutiny they deserve. Herb Wesson, a former Speaker of the California State Assembly, and other minority legislators have been especially guilty of this.

A Payday loan allows anyone to walk in and pay a customary $300 to actually receive $255. Theoretically, the check for $300 is not cashed for two weeks, or until the next pay day. Thus the name, payday loans.

Becerra's article does not mention that many of these loans are rolled over. In other words, when the borrower is unable to pay the money in two weeks, he takes another loan, and the debt quickly mounts up to what can be astronomical sums. Someone may start out taking $255, and end up owing thousands of dollars.

When I wrote a consumer column for the L.A. Times, I once calculated that the interest rate eventually could mount to 941% a year. Becerra does not mention this in his article.

Instead, he writes about this business as if the $255 received for $300 is an isolated transaction. Often, it isn't. Instead, it is the beginning of a downward spiral into ever greater debt.

As said above, there is a long history of our often corrupt Legislature caving in to the payday lobby, which is well funded and highly organized. It regularly pays off legislators through campaign contributions. Becerra should have gone into this, because it explains how 2,500 of these stores could have sprung up in California.

The headline on the article quotes the mayor of Baldwin Park calling Payday lending shops eyesores. But they are worse than eyesores. They are making smalltime chiselers rich by hugely overcharging the poor and economically distressed.

Maybe Becerra, who is often a fairly good reporter, should have left this subject to the Times' consumer columnist, David Lazarus, who frequently writes with more realism of the scams that abound in modern society, whereby those least able to pay are charged the most or gypped the most.

Becerra is not the only Times reporter who errs by paying scant attention to the numbers. The numbers here are devastating: They clearly show this business ought to be banned in California.

Instead, Becerra gives entirely too much credit to the arguments of the Payday lenders that the shops are good because they allow those who need it to get money fast to tide themselves over, or fund immediate purchases, such as a trip to Disneyland.

What he ignores is what they pay for the transitory benefit.

Predatory lending has been a major factor in development of the subprime mortgage crisis, which has spun the nation into foreclosures, a dramatic downturn in housing sales, and now shows signs of metasticizing into other forms of credit, such as the bond markets and even student loans.

Payday loans are not for such high amounts, by any means, but they do add up to a drain on society.

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2 Comments:

Blogger Krystal said...

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3/10/2008 12:36 PM  
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3/11/2008 10:23 PM  

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