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Friday, March 27, 2015

Dang, Obama Gets One Right

For the past six years it is hard to find anything that Obama has done that deserves the praise of conservatives. Yesterday, he spoke of his support for The Consumer Financial Protection Bureau's proposal to end payday loan traps.

It is an embarrassment to conservatives that most of the support for the payday loan industry comes from free marketers and libertarians. They see no problem in shrewd businessman taking advantage of desperate poor people who don't have a grasp of the trap that is set for them when they use these services.

In supporting the need to crackdown on payday loan abuse, the Associated Press reported the story of Wynette Pleas, an Oakland, California single mother of three including a blind son. Pleas borrowed $255 to pay her electric bill and buy groceries. The payday lender got access to her checking account and tried to withdraw money that wasn't there. The overdraft activity resulted in the bank closing her account. Meanwhile, fees and penalties ballooned the $255 debt to an incredible $8,400!

The Pleas story is extreme, but not uncommon. Investigative reporter Gary Rivlin wrote an excellent primer on the payday loan industry in his book, Broke, USA: From Pawnshops to Poverty, Inc. - How the Working Poor Became Big Business. The reader will find story after story of how smart businessmen take advantage of poor people with few other options to clean out their limited assets. They tap into their low wage income and repo cars these poor borrowers can ill afford to lose since that takes away their transportation to work. Rivlin's book points out that while some payday loan customers are able to use these services without paying through the nose, the payday loan stores focus on getting clients who have become repeat customers to borrow again and again. It is not uncommon for these customers to pay more than $500 in interest in fees during the year on a $500 loan. Without these high profit clients, the payday stores can't stay in business, even if it ruins the borrowers.

Condemnation of this sleazy industry is not limited to anti-business liberals. Payday lending is illegal in some very conservative states, such as Arizona, Georgia, and North Carolina. Somehow poor people in those states are able to get by without "help" from payday lenders. Federal action to stop this type of fiscal abuse is a good thing. If people can keep more of their own money, they have less need to seek government assistance.

If people don't have a chance to take this "easy" money loan, they will find they have to become better prepared at controlling their income and spending. Yes, greater personal responsibility, a novel thought! 

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