Predatory lending and micro-lending
Jason Winders writes his best column in years, as he takes on predatory lending. Perhaps it's serving as a counterpoint to Willie Green's absurd column promoting H.B. 163, but it's right on the money.
Working with a non-profit that assists homeless families, almost all of them have experienced some sort of negative resulting from predatory lending. It's a form of economic servitude and nothing less. It perpetuates poverty, fooling its clients that a cheap-fix is right around the corner, all the while making them slaves to this new master. And, as Winders noted, it ignores the real issue at work here.
Maybe we need to look at the root causes for paycheck-to-paycheck living. Maybe we need to shrink the customer base for these businesses. Let's look at financial education for our kids, credit card management, bravely address living-wage issues.
I draw a very hard line with this particular practice. It offends me. It breaks people down rather than lift them up. The emergency cash they so desperately need comes with a list of hidden strings that push them deeper into a spiral of poverty.
This bill, as Green touts, charges a $15 per every $100 loaned, which seems reasonable right? However, this fee can go as high as 25 percent of a person's monthly income, which pushes aside money for rent, car payment, utilities, food, etc. As a result, the need for them to either default on one of those payments or turn back to the same lender becomes very real.
My concern over this issue is so great, that I have even begun to recently find ways to offer compassionate alternatives to predatory lending. The individuals who need this money, and come through IHN of Athens, often find themselves kicked right back down the ladder they've worked so hard to climb when something such as a broken-down car or unforeseen medical issue pops up. As a result, they fall right back down into the clutches of poverty they have so dutifully worked to the pull out of.
With this in mind, and adapting the idea put forth in Muhammed Yunnas's Banker to the Poor, I've been talking with some folks in the faith community and the non-profit community in town to develop a micro-lending program that would, at its outset, assist those folks who need emergency funds. In theory, we'd charge zero interest and offer small amounts of money to individuals who need it. We'd also work to offer financial literacy classes to those who need them.
Understandably, we've got lots of things to iron out, but I also haven't met one person who has felt this is a bad idea. And it's something I'm absolutely dead serious about starting. The idea is there, and now we're just going to set out to make this a viable solution in this community.
If you're interested, don't hesitate to send me an email and say so.
Working with a non-profit that assists homeless families, almost all of them have experienced some sort of negative resulting from predatory lending. It's a form of economic servitude and nothing less. It perpetuates poverty, fooling its clients that a cheap-fix is right around the corner, all the while making them slaves to this new master. And, as Winders noted, it ignores the real issue at work here.
Maybe we need to look at the root causes for paycheck-to-paycheck living. Maybe we need to shrink the customer base for these businesses. Let's look at financial education for our kids, credit card management, bravely address living-wage issues.
I draw a very hard line with this particular practice. It offends me. It breaks people down rather than lift them up. The emergency cash they so desperately need comes with a list of hidden strings that push them deeper into a spiral of poverty.
This bill, as Green touts, charges a $15 per every $100 loaned, which seems reasonable right? However, this fee can go as high as 25 percent of a person's monthly income, which pushes aside money for rent, car payment, utilities, food, etc. As a result, the need for them to either default on one of those payments or turn back to the same lender becomes very real.
My concern over this issue is so great, that I have even begun to recently find ways to offer compassionate alternatives to predatory lending. The individuals who need this money, and come through IHN of Athens, often find themselves kicked right back down the ladder they've worked so hard to climb when something such as a broken-down car or unforeseen medical issue pops up. As a result, they fall right back down into the clutches of poverty they have so dutifully worked to the pull out of.
With this in mind, and adapting the idea put forth in Muhammed Yunnas's Banker to the Poor, I've been talking with some folks in the faith community and the non-profit community in town to develop a micro-lending program that would, at its outset, assist those folks who need emergency funds. In theory, we'd charge zero interest and offer small amounts of money to individuals who need it. We'd also work to offer financial literacy classes to those who need them.
Understandably, we've got lots of things to iron out, but I also haven't met one person who has felt this is a bad idea. And it's something I'm absolutely dead serious about starting. The idea is there, and now we're just going to set out to make this a viable solution in this community.
If you're interested, don't hesitate to send me an email and say so.
posted by Jmac at 9:11 AM
8 Comments:
JMac, I am in something that almost, quite possibly, at least very closely, has the appearance and resemblance of, agreement with you. !!
Calvin was temporarily exiled from Geneva for two things basically (ignoring the underlying political realities and going straight to the immediate cause):
a. He condemned Genevan bankers for the high-interest-rate loans they gave to the very poor.
b. When these bankers (along with some other "libertines") refused to repent and showed up on Easter Sunday to receive communion, Calvin refused to serve them (even though the city Council had ordered him to do so).
Also, the Mosaic law commanded a whole number of loans to be given without interest.
So, I have an 'ideological' history for opposing this sort of thing, despite my quasi-libertarianism. (Though I don't follow the medieval Catholic tradition that makes usury a sin per se in all instances.) And I'm with you; something is very screwed up about these loans.
But, at the same time, one thing modern economics has taught us is that we need to be able to give things a second look sometimes, to understand what's really going on. And I do think we need to be careful to understand what causes this predatory lending.
The more-or-less charitable organization you are wanting to get started is a very very good thing. But it is interesting that this didn't exist already, and what that means. In a world where there are not already charitable organizations offering micro-loans to the very poor at zero or very very low interest, what options does a poor person have if his paycheck is running out?
Poor people are generally high credit risks, which is why they don't already have a line of credit at a better interest rate. If a business is going to give such folks a loan, it can only be expected that they will need to do so at a higher-than-normal rate, to recoup their risk. We can't really expect a business to divert scarce resources (which in most cases could be spent on other things that society also thinks are good) into giving loans to a high risk person without charging interest appropriate to the risk they are taking.
And when these lenders do offer these loans, they are giving many poor people an option that is better than any other option they had. Without these payday lenders, many poor simply wouldn't be able to get loans at all.
Which is what brings us back to the micro-lending organizations. The real shame here is that we haven't already had these sorts of things in place. We complain about the "evil" practices of the payday lenders, but the truth is that they represent the best option for many desparate people. Well, why is that, and whose fault is it? It's not the fault of the payday lenders that "exorbitant" interest rates are the best deal the poor person can get, is it? It is on us to provide alternatives, to provide better options, and then the "market" for these high-interest loans will shift.
I wonder when Jason will put pen to paper to talk about predatory borrowing?
A chunk of my mortgage and credit card payments goes to make up for the deadbeats who prey on lenders with no intention of paying.
I'm just sayin'...
While the idea of Jason Winders dying of hunger certainly appeals to me, I still am going to have to agree with his column regarding predatory lending.
I'm told that a lot of these lenders prey on military personnel, particularly E-1's who are probably away from home for the first time, many of whom are receiving a paycheck for the first time. Many soldiers I know say that around every base there is "that street" where there are huge muscle cars for sale under terms that the lenders KNOW a new Private cannot meet.
The real predatory lending is going on with mortgage refinance loans. People are being lied to and screwed out of their homes. If you know anybody that this has happened to, tell them to contact an attorney about suing under the Truth In Lending Act.
Micro-lending has been highly succesful all over the world. HerzHonor brought it to my attention about 10 years ago. It's been especially successful in the "third world" in helping raise women out of poverty.
I'm more than interested. I'm in a position to help;
P.S. please excuse the typo;s - I'm having eye surgery on Thursday.
Great idea. This kind of thing is long overdue, and the only way it will get done is if private citizens and non-profits go out and make it happen.
Hey Al-
A quick hijacking of JMac's comments for F1 discussion again:
A few of us got together this weekend to watch the GP. I need to get your e-mail so I can let you know next time I'm hosting.
And to the point, the red cars look like they will continue to be good, even lacking Schumacher.
Darren
Darren - cool! Yep, Kimi picked up right where Schuey left off. Lewis Hamilton - WOW!
You must be the only guy in the world who does not have my email address:
dms@negia.net
I was wondering if you guys were watching.
Ak
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