A long list of worries weighs on us. Our health, our jobs, our children’s education. Are we in danger of foreclosure or eviction? What about racial disparities in policing and justice systems?
While we are grappling with these tremendous challenges, federal regulators have something else on their minds: They are methodically easing the way for predatory lenders. The most alarming of these actions is a rule proposed by the Office of the Comptroller of the Currency (OCC), a regulator of national banks, that would fling open the doors for predatory lenders to return to North Carolina. We could expect them to once again set up shop in strip malls and shopping centers, promise people cash until payday, and ensnare them in 400% interest debt traps. And as they did before, we could expect these predatory lenders to locate in communities of color more often than white neighborhoods.
This is the last thing we need, and once again, communities of color, which are hit hardest by the pandemic and its financial fallout because of underlying systemic inequities, would be beset by a practice that only widens the ever-increasing racial wealth gap.
The verdict has long since come in on payday lending. High-cost debt trap loans, as we find from heaps of evidence accumulated from around the country, only make people worse off. With extensive documentation that the practice is marketed as a quick fix, but designed as a machine calibrated to fasten to the bank accounts of low-income people and draw off cash methodically — few still defend it. Those who do may have a misunderstanding of the harm they cause, or they may have ties to the industry.
In 2006, the North Carolina commissioner of banks forced payday lenders out of the state. While our interest rate cap should have kept them from making their 400% interest debt trap loans here, Advance America paid an out-of-state bank to pose as the “true lender,” even though the payday lender was in control of the operations. They weren’t the only payday lender to do this. This is the very “Rent-a-Bank” scheme that the OCC plans to bless.
During that time, my organization talked with a 69-year-old warehouse worker who had taken a $200 loan from Advance America. Each payday, this grandfather of seven returned to the store and renewed the loan so that Advance America would not deposit his post-dated check, which would make him short again until the next payday. The loan eventually increased to $300. He paid $52.50 for every renewal, and Advance America flipped his loan over a hundred times, eventually costing him about $5,000 in fees (the loan documents are on file with the Center for Responsible Lending).
This kind of story has moved thousands of individuals, advocates, and faith leaders across the country to shine a light on the dark and dirty practice of payday lending. Sixteen states and D.C. enforce interest rate caps around 36% to stop high-cost payday lending.
The OCC rule would also let lenders ignore the installment loan caps set by 45 states, North Carolina among them. High-cost installment loans also drag people down deeply into debt.
The OCC clearly has no regard for the right of states to protect their citizens from this predatory practice. The rule would intentionally give non-bank lenders a way to ignore state interest rate caps. This is a betrayal.
Those who agree may wish to submit a comment in opposition to this rule by Sept. 3.
Rochelle Sparko is director of North Carolina Policy for the Center for Responsible Lending.
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