One of the most well-known kinds of poverty traps is the debt to the moneylender. It goes like this: in the midst of a crisis, you’re forced to take out a loan to keep the lights on and food on the table. The interest on the loan is so high that all your available money goes just toward paying that interest. Pretty soon, you spiral into ruin.
For all the talk of helping The Little Guy this election cycle, there’s been no discussion of the way that usury has now become woven into the fabric of this country. Huge – and profitable – companies like Cash America Pawn regularly charge over 200% annual interest to their customers. Payday lending establishments and car title loan places have been known to charge 300%, 400% — even 2000% — annual interest. And this is all perfectly legal.
By contrast, a recent New York Times article mentions:
In Greece, as conventional bank lending has gotten tighter, more and more Greeks are relying on usurers….The loan-shark business has perhaps quadrupled since 2009 – some of the extortionists charge annualized interest rates starting at 60 percent. (Emphasis mine)
In other words, the underground loan sharks of Greece are still charging less than the legal US pawn shops and payday lenders. And don’t think this applies only to storefront loans. A credit card that has a so-called interest rate of 19% might shoot up to 35% if you’re a day late, and then tack on a “late fee,” along with an “over-limit fee” caused by that very same late fee. If you think of those fees as part of your interest payment — and that’s what they are — the annual rate is more like 60% to 80%.
Ironically, the worse off our country gets, the more profitable loan sharking becomes, because the economy pushes more people into desperation. Just take a look at Cash America Pawn’s stock price over the last few years of the recession.
Usury in America is a problem ripe for some Applied Grace. There’s a systemic problem – legal loan sharking. There’s an obvious, top-down solution — legislation. But, there’s also a systemic problem blocking this approach — corruption. These companies have too much financial clout in our current political system, and no politician wants to stand up to his or her donors. So, we need a different approach.
What are some ways around this? One thing I’ve thought of in the “if you can’t beat ’em, join ’em” category is that we could create alternative, non-profit pawn shops. A not-for-profit pawn shop would still charge interest — enough to keep the business running. It would continue to keep short-term credit options available to the poor. But it would severely undercut the competition. We could beat them at their own game, all while praying to their favorite god: “The Invisible Hand of the Free Market.”
Another approach would be a series of regional anti-usury campaigns. We may not be able to outlaw usury for the state of Texas, but what about Austin? What about other cities and counties? Once we did that, we’d get some momentum going for a national movement.
What are your suggestions?