This Shark Week, let’s end loan sharks’ bloodbath

Shark Week is a summertime staple from the Discovery Channel, but this year, advocates are targeting a different kind of shark: loan sharks. While sharks in the ocean prey on fish and other aquatic animals, payday lenders, also known as loan sharks, prey on people in need by offering them loans with high interest rates that are difficult to pay off. 

The campaign, headed by National People’s Action and supported by Woodstock Institute, took over the #SharkWeek hashtag by highlighting different payday lenders and encouraging loan shark survivors to share their stories. NPA also encouraged readers to sign an online petition with the goal of creating comprehensive rules from the Consumer Financial Protection Bureau that will end predatory practices by payday lenders—something Woodstock is asking the CFPB to do, too. We know from our experience in Illinois that payday lenders will drive a truck through a loophole, so we need to make sure that the CFPB’s rules will cover all kinds of high-cost, short-term credit.

 

Payday lenders prey on people who desperately need money in a short period of time. These situations and the aggressiveness of the payday lenders became so well known that the term “loan shark” began to be used to refer to the lenders. Despite their abusive policies, payday loans are still accessible to the general public. A 2013 report from the Center for Responsible Lending titled, “The State of Lending in America & its Impact on U.S. Households,” highlighted the abusive practices of payday lending. The report notes that payday loans create a “debt treadmill” for their borrowers which are characterized by five payday lending practices:

  1. Lack of underwriting for affordability/ability to repay
  2. High fees
  3. Short-term due date 
  4. Single balloon payment
  5. Collateral in the form of a post-dated check or access to bank account

These practices take advantage of the borrower, creating a situation where the only winner is the loan shark. The report also notes the disparity of who is targeted for these loans: “As detailed below, these borrowers tend to be low-income, young, and female. In addition, although most payday borrowers are white, people of color are more likely to receive payday loans, and payday lending storefronts are more likely to locate in neighborhoods of color.”

 

Traditionally, payday loan regulation has happened at the state level, where protections for consumers vary widely. A report released by Woodstock and three partners from across the country documents the fight against payday loans in Illinois, New York, North Carolina, and California. In all four states, it was clear that payday lenders would fight hard in state capitols when they felt that their profits were threatened. Unfortunately, politicians caved in to lenders sometimes, even in the face of overwhelming evidence of the harm that payday loans cause to consumers.

 

Nonetheless, enforcement agencies such as the CFPB have taken steps against payday lenders. In June 2014, CFPB found that ACE Cash Express, one of the largest payday lenders, was in violation of the Consumer Financial Protection Act. ACE was using illegal debt collection tactics, including harassment and threats of criminal prosecution against its customers, according to an article on the CFPB website. The CFPB required ACE to pay $5 million in refunds and another $5 million in penalties.

 

Loan sharks have taken enough victims, and it’s time for the bloodbath to stop. We stand with NPA and advocates across the country who are urging the CFPB to take decisive action on reform payday loans.