Payday Loan Industry Gets Its Due

• by Thom Forbes , Featured Columnist @tforbes, August 12, 2014

The payroll loan business is having a tough week — and it’s only Tuesday. First, HBO host John Oliver, who last week caused a viral kerfuffle with his takedown of “native advertising,” chose the predatory loans for his main story on Sunday’s “Last Week Tonight” and — spoiler alert — companies issuing loans with interest rates as high as 1,900% did not come off as models of business acumen. 

Then, a year-long investigation by New York State culminated yesterday in an indictment in Manhattan against the owner of a dozen payroll-lending companies — a former used-car salesman in Tennessee named Carey Vaughn Brown — and two of his associates, reports Jessica Silver-Greenberg in the New York Times.

“More than two dozen victims in Manhattan were caught in the web-based predatory traps in which overseas businesses doled out small, short-term loans at more than 300% interest per year, well above the 2% legally allowed for unlicensed lenders, court papers say,” according to Shayna Jacobs in the New York Daily News.

“Such charges are rare,” writes Silver-Greenberg. “The case is a harbinger of others that may be brought to rein in payday lenders that offer quick cash, backed by borrowers’ paychecks, to people desperate for money, according to several people with knowledge of the investigations.”

“The exploitative practices — including exorbitant interest rates and automatic payments from borrowers’ bank accounts, as charged in the indictment — are sadly typical of this industry as a whole,” said Manhattan district attorney Cyrus R. Vance Jr.

Oliver’s report, in which he “continued his mission of educating viewers on a little-understood topic that has enormous impact on our culture,” as Carol Hartsell put it on The Huffington Post, certainly made that clear. He described the industry’s business model “as a ‘circle of misery’ designed to keep people coming back for ridiculously high-interest loans again and again.”

Oliver incredulously reports that there are more payday loan lenders in the U.S. than McDonald's and Starbucks outlets. “Oliver's biggest issue with them isn't their ubiquity, however; it's their vicious circle nature that prevents people from escaping,” points out The Wire’s Kevin O’Keefe. “It's the circle of debt!” Oliver sang to the familiar “Lion King” theme. “And it screws us all.”

He also “had some fun at Texas’ expense Sunday night, devoting three minutes [of the segment] to conflicts of interest in Lone Star State efforts to regulate lenders,” blogs Brian M. Rosenthal on the Houston Chronicle’s site. 

Good thing that lobbyists maintain little sway in other states and on the federal level, eh?

Comedian Sarah Silverman makes a cameo appearance urging folks to do “literally anything else” before signing up for a payday loan. “If you're thinking of getting a payday loan, just simply pick up the phone, and then put it down again and do literally anything else,” she says, among other more graphic images.

As funny as the report may be, it ignores a serious policy issue, writes Matthew Yglesias on Vox — the lack of viable alternatives for lower-income people in a bind for immediate cash. “Payday lenders rush in to fill that gap in part because it's a very real gap,” he writes.

Also charged in Manhattan yesterday were former COO Ronald Beaver, who pleaded not guilty and was released on $100,000 bail, and attorney Joanna Temple, who got a letter from New York Attorney Gen. Eric T. Schneiderman in May 2012 warning that the state’s usury laws were in effect even though MyCashNow.com was registered elsewhere [the West Indies].

Brown’s lawyer said his client “acted in good faith and looks forward to showing his innocence.”

Chattanooga Times Free Press business editor Dave Flessner has a different take on the “Chattanooga businessman and philanthropist,” as he refers to him in his lede. “Brown started the Covenant Values Foundation in Chattanooga and pledged to give away $1 billion before his business empire shrunk with the shut-down of most of his payday lending empire [in August 2013].”

Jacobs reports that this is “the first time the state usury statute has been used since the DA charged alleged Bonanno family members, headed by boss Nicholas (Cigars) Santora, in a massive loansharking, extortion, gambling, perjury and Viagra-peddling case filed last year.”

Can’t wait to see Oliver’s take on the illegal Viagra racket that’s threatening not only the very foundation of proprietary medicine but also, quite possibly, the Republic itself.