On payday loans

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Following up on some recent posts, I saw this story in the San Fransisco Chronicle concerning income inequality (hat tip to ThinkProgress). The gist: even though low-income families make less than their richer counterparts, they pay more for goods and services:

By taking out higher-interest mortgages, shopping at rent-to-own furniture stores, using check-cashing businesses instead of banks and buying groceries at convenience stores, the nation’s working poor households pay much more than moderate- and high-income households for life’s essentials, says the Brookings Institution study, which analyzed services in San Francisco, Oakland and 11 other cities.

It turns out that payday lenders and check-cashing services are a major cause of limited buying power for low-income, urban residents:

In San Francisco, you are nearly five times more likely to find a check-cashing business in a poor area than any other neighborhood. In the Tenderloin, the city’s poorest area, there are 10 check-cashing businesses, where the annual percentage rate can top 390 percent. In Pacific Heights, a rich neighborhood, there are none.

Check cashers charge 2 percent or more to cash a payroll check; banks allow deposits for free. Payday lenders, who offer cash for a consumer’s own post-dated check, charge 500 percent-plus in annual interest.

The Albuquerque Tribune has been hitting this issue pretty hard lately, with a special report last week on payday lending in New Mexico. One article looks at the ways in which proposed laws curbing predatory practices were curbed in the Legislature:

In sessions since then, other bills designed to regulate what (Attorney General Patricia) Madrid calls the predatory lending industry have been introduced. Madrid liked and backed some of them and was appalled by ones she felt did little more than legalize industry practices she considers abusive.

One thing the bills have in common, however, is that none of them passed.

(state Sen. Cisco) McSorley said that’s because legislators, always in need of campaign funds, are influenced by large, corporate donations from the payday and car-title loan industry, which would just as soon not be controlled by state law.

“Twenty years ago, you would never have seen the influence donors have now because campaigns were not so expensive back then,” he said. “But now, when you have consumer groups on one side who have almost nothing to give and lobbyists on the other side who do, the outcome is almost a foregone conclusion.

“Money solves all moral and ethical dilemmas.”

Ahh, but of course. There are nine articles in the special report, and they’re all worth your time.

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