The Paradox and Problem of Payday Lending

A customer enters a Payroll Advance location in Cincinnati. (Al Behrman / AP)

A customer enters a Payroll Advance location in Cincinnati. (Al Behrman / AP)

New Orleans  Here’s an irony that is stark, yet impossible to really appreciate or enjoy. The Atlantic billed its most recent issue as “The Money Report.” The cover article was built around the premise that almost half of the American people have trouble coming up with $400, when there is a financial bump in their road. There was another article called “Loan Shark, Inc.” which was a probing and somewhat sympathetic article about the payday lending industry that mentioned that the average payday loan is $350, about the same number repeatedly cited in “The Shame of the Middle Class,” yet of all the tales of woe from its author, there was no mention of his ever going so low as walking through the doors of a storefront payday lender or the portals of one online.

Without a word of warning or explanation, it was assumed that clearly payday lenders were all about exploited lower income families, not the presumptuous middle class. The real line of demarcation they were unwilling to draw is that even if half of the middle class finds themselves in dire straits from time to time, it’s not catastrophic since they still have other informal places to go with family and friends or selling assets or reducing their footprint, while the poor are forced into predatory fringe financing once there is no place else they can go.

In the classic dilemma of neoliberalism, the payday lending article worried around the issue of alternatives between the devil and the deep blue sea. The polarity was presented as either payday lenders or worse, loan sharks, shysters, and gangsters. The role of government was limited only to regulation, and regulation was presented as problematic because when government stepped up to protect consumers from predatory practices, the marginal and inefficient payday lending industry shut its doors. In the USA New York and other states were given as examples of the industry fleeing when interest rates were reduced, and rather than applause there was handwringing. In Canada, where ACORN has been a dog on a bone chasing predatory lenders for over a dozen years, a 30% limit on interest rates in Quebec saw the payday people fleeing like rats on a sinking ship. ACORN has backed caps, though not that low, and industry record sharing that prevents multiple loans to one customer in the same period, as well as restrictive zoning limits in our neighborhoods among other reforms. ACORN also backs postal banking which The Atlantic gives short shrift.

Their best recommendation comes from what they admit are “more-modest reforms” in Colorado in 2010 that were achieved “by reducing the permissible fees, extending the minimum term of a loan to six months, and requiring that a loan be repayable over time, instead of coming due all at once.” Half the payday lending operations closed, but the ones that stayed open ended up with more than the average 500 annual customers and borrowers paid “42 percent less in fees,” and defaulted less “with no reduction in access to credit.” One hand clapping, I guess.

The author was right to understand that the real problem for families is desperately needing $350 with no other alternatives. Why are we wringing our hands about a predatory industry rather than stepping up and understanding that this is a collective responsibility? These are the kinds of problems that emergency assistance grants in welfare offices used to try to meet. The absence of a continued public response makes these private problems, increases hardship and inequality, locks people in a debt trap, and has led to the creation and growth of an industry where competition is irrelevant, inefficiency is rampant, and even reformers wring their hands and settle for sorry solutions.

Public welfare is exactly that, faring well for the public. When are we going to stop embracing the 19th century and start building the 21st?

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Finally, Something We Can Agree on with Bill Gates!

Peruvian workers and activist protest against the 2015 IMF/World Bank Annual Meetings in Lima, Peru, Oct 9, 2015.

Peruvian workers and activist protest against the 2015 IMF/World Bank Annual Meetings in Lima, Peru, Oct 9, 2015.

New Orleans   There’s an old saying that the sun shines on an old dog’s, how shall I say this, hind quarters, eventually, and that’s about how often we agree wholeheartedly with mega-billionaire Bill Gates, but when it does shine on his rear end, we should all have the grace to acknowledge it.

While we’re just trying to make it to the weekend, Gates laid out his weekend plans to the Wall Street Journal where he is attending the spring meetings of the World Bank Group and the International Monetary Fund. Yes, I know, I’d rather join you on a worm dig as well, and believe me, we’re definitely not invited. But, on this rare occasion Gates is publicly arguing a position that ACORN International and I have advocated for years, including in the Social Policy Press book I edited, Global Grassroots, so instead of having to cringe at Gates and his foundation’s unending efforts to break teacher unions, promote charter schools, and redirect all health aid to a few diseases rather than generally, we are totally on the same page.

The issue may seem narrow, but it actually involves whether or not billions of dollars in foreign aid can be given to countries that desperately need the money to advance health, education, and opportunity to poor families living in precarious positions. The problem is that the World Bank and the IMF, creatures from the last century, classify countries based on average income in determining whether they are poor or middle-income, and it matters. Several years ago in Gatineau, Canada we met with the well-respected Canadian International Development Agency (CIDA) seeking support for the work ACORN was doing in mega-slums in various countries in Latin America. The program officers could not have been nicer or more supportive, but they were clear with us that the standards followed by the conservative government at the time mandated that any new allocations of CIDA support could only occur in countries that the IMF and World Bank classified as poor. In Latin America that mean that only Nicaragua and Bolivia were eligible. La Matanza outside of Buenos Aires, San Juan de Lurigancho in Lima, and the Neza outside of Mexico City were three of the ten largest slums in the world, but Argentina, Peru, and Mexico were all classified as middle-income countries, so we were out of luck.

Gates correctly makes the point that, “Today, more than 70% of the world’s poorest people – those living on less than $1.90 per day – live in countries defined as middle income, according to the World Bank.” How absurd! He also references another study that, “Countries with huge pockets of poverty like Nigeria, India, Pakistan, Ghana and Vietnam could lose as much as 40% of their development assistance in the next few years….,” all because of this out of date classification system and its deadly consequences.

Of course now that he’s more of a politician than a philanthropist, he throws out some red meat for the conservatives about how we can make these countries better at collecting taxes, which seems a little like trying to get water out of a stone, but, whatever, he’s right that the IMF and World Bank – and all of the countries griping the purse strings – need to get with the 21st century and get over their post-World War II thinking about countries and look at what is really has to be done to reduce poverty, rather than some bright light test that fails to help the poor. They may not have been willing to listen to us, but Gates’ voice needs to be heard, and they might just listen to him, and that would be a good thing for a change.

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Why is it so Hard for Policy Makers to Separate Access from Affordability?

981207_10156731174555570_8112977795619686083_oNew Orleans    Life, work, and the world are full of mysteries, but after years of hitting my head against various walls, I’m finally connecting the dots in trying to understand the peculiar responses we sometimes get in trying to change public policies and private pricing strategies.

Remittances are a prime example. Talking last week to a professor who teaches a course at a local university on personal finances, she was excited when I told her about ACORN’s Remittance Justice Campaign, because she wanted her students to understand the complicated world of money transfer systems. When she understood the topline demand of our campaign was to cap the pricing at 5% to stop remittance costs from being so predatory, her face almost deflated. Of course she supported our position, don’t get me wrong, but affordability had not occurred to her as an issue in the way that it is of course paramount to immigrant families and migrant workers trying to send money home to relatives and communities in their home countries.

ACORN Canada members are testifying this week before the CRTC (Canadian Radio & Television Commission) about the high price of internet in Canada. Quoting from an early copy of their prepared testimony:

…the organization released a report summarizing 400 testimonials from low-income Canadians about how vital yet unaffordable home internet is.

A recent CRTC survey suggests that many Canadians think home internet is essential, but too pricey. Half of the survey’s 29,000 respondents are dissatisfied with the price of their internet service. ACORN Canada members view affordable access to the internet as essential to improving low-income Canadians’ ability to succeed in the digital economy.

“How can low-income families get out of poverty if they can’t apply for jobs, or access government services? Our kids can’t even do their homework,” says ACORN Canada President Marva Burnett. “Access to the internet is a right, and going to the library or coffee shops are not practical solutions.”

The same dilemma was faced by the FCC in the United States and, as we recently discussed, and the FCC duck walked around the issue by subsidizing the cost of internet ostensibly for lower income families by around $10 per month, rather than tackling head on the fact that affordability is the barrier to access, rather than availability of the internet.

This is an old saw. In the housing collapse from 2007, the supposed “reform” was trying to force lenders, many of whom were overtly predatory in the subprime mortgage field, to have to assure the loan was affordable to the family before issuing the money. When they were just churning loans, there was more than enough access to mortgage lending capital, but whether it was affordable within an honest reckoning of family income was a diminished factor in pumping air into the bubble.

Why do policy makers refuse to routinely address the issue of affordability when dealing with the question of access of services and implementation of programs? This is where the divide of experience between the one-percenters and big whoops from the rest of us and especially from low-and-middle income families becomes so pronounced and creates such tragic results. They just don’t get it, and too often these days, seem unwilling to do the “homework” and listening to understand the issues from any other point of view, especially from the perspective of our people.

Simple suggestion: consider affordability first, and access later down the list. Make stuff work by understanding that pricing pushes people as a primary concern.

Duh!

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Finally Remittances is a USA Political Issue, but for the Wrong Reasons

indexNew Orleans     For several years ACORN members have kicked at the doors of government officials and financial institutions around the world in our Remittance Justice Campaign seeking to stop the predatory cost structure of money transfers from immigrant families and migrant workers back to their families in their home countries. For all of the talk from the World Bank and the G-8 and its moralizing about reducing the cost of remittance transfers to 5%, it has missed its target dates and done actually nothing to achieve the goals, leaving the poorest workers in the world paying billions to transfer one or two hundred dollars to help their families, while corporations and the rich transfer millions through the same computer networks for fractions of a penny. Remittances exist in a regulatory wasteland of uncoordinated country rules and central banks allowing money transfer organizations and banks to charge pretty much whatever they can get away with to individual customers.

Now, suddenly remittances have their almost front page moment thanks to an unlikely advocate, the irrepressible and uninformed Donald Trump who has now stumbled onto remittances the way someone might run into another drunk while trying to make your way out of a bar while a fight is going on. Turns out his plan for paying for the preposterous border wall between the United States and Mexico that would supposedly stop illegal immigration is to somehow try to shakedown the Mexican government for “a one-time payment of $5-10 billion” to pay for the privilege. Mexico’s central bank estimates that $25 billion in remittances comes into their economy annually, so Trump’s bluff is that he would somehow use executive orders to threaten new amendments to the Patriot Act that would somehow stop the flow of remittances and Mexico would rush the money to pay for the wall to keep the cash flowing.

President Obama derided the notion by taunting Trump and saying essentially, “good luck” tracking every Western Union transaction. Sadly, his statement, though scoring points politically and rhetorically, also reveals the level of impotence and indifference the US government has shown in moving Western Union, MoneyGram or any of the other players, large or small, to deal seriously with the issue of any kind of regulations or control of the money transfer business. Basically, Trump’s plan targets the poor of Mexico overtly, rather than the current public policy on remittances which targets the poor indirectly by ignoring the issue. The Consumer Finance Protection Bureau has made noise about stepping into the issue of pricing and transfers since the Federal Reserve has abdicated any interest protecting the users from predatory practices so that their real concerns, the financial institutions, can keep milking this cash cow, but there has been no follow-up yet.

Competition and international ownership of the largest Mexican banks has forced the fees down in the Mexican market, even as they have remained exorbitant in many other remittance channels globally. Most reporters on this issue who are as oblivious about remittances as Trump and his campaign, and simply say there would be legal and political challenges. In reality after some momentary inconvenience and disruption the transfers would simply go black market and informal, like hawala systems. There would be thousands legally “muling” money across the border legally within days. The Mexican government would protest formally, but informally would simply yawn, while financial institutions on both sides of the border, desperate to keep the rip-offs running, would be screaming like stuck pigs at not being able to milk this cash cow.

Regardless, now that Trump has raised the issue, is there any chance we might finally get politicians, the press, policy makers, and the general public to really understand remittances and put a stop to the predatory feasting of financial institutions on immigrant families and migrant workers?

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Only One Hand Clapping for FCC Expanded Lifeline Rule for Internet

indexNew Orleans   FCC Chairmen Tom Wheeler claimed the decision to expand Lifeline programs from telephones to the internet was a major breakthrough in closing the digital divide. This was a 3-2 decision on party lines. The majority at the FCC claim that this broadening application of the subsidy will “help millions of low-income households connect to the internet.”

The New York Times noted that “only about 40% of families making less than $25,000 a year can afford broadband while 95% making over $150,000 have high-speed internet at home.” The program will provide a monthly subsidy of $9.25 to access broadband. The eligibility for the program will begin with those eligible for either food stamps through the SNAP program or veterans benefits.

This must be a good thing, right? Why are we not applauding or at best have only one hand clapping this new FCC initiative?

Let’s look at just some of the reasons.

First, this program will NOT close the digital divide, and the subsidy is basically a subsidy for internet providers like Comcast, Times-Warner, Charter, Cox, and others, more than it is a subsidy for lower income families.

Why do I say this?

Well, let’s please remember that analysts argued several years ago when the FCC required Comcast to establish a $10 per month program for lower income families as a condition of approving their acquisition of Universal, that Comcast would still make money on internet even at $10. This program will be almost a ten dollar subsidy for a family to access broadband, which in plain English means of course that the internet provider will be charging more, and potentially way more, for the service while the $9.25 knocks a bit off the bill. In the run-up to the FCC’s action some argued that average basic internet bills were running $30 to $40 per month. Knock a ten-spot off of that bill, and we’re still talking about families pushed up against the wall having to come up with another twenty or thirty bucks. And, I’m not even talking about the cost of installation or whether or not the family has a computer. This is just not going to happen.

And, will this be “high-speed” just like those 95 percenters have who are making $150,000? I doubt it. In Canada for several years after we got Rogers to agree to a $10 per month plan in public housing in Toronto, we were constantly arguing with them about issues of speed. One or two megabytes per second is not enough to stream or download or do most web-based homework. The FCC action was silent on this issue.

One-hand clapping might say this is better than nothing. Maybe. But, the fact that internet providers are not complaining should be a clue, friends and neighbors. They are glad to get their hands on some of the billions that had been solely subsidizing phone service for some lower income families. The Comcasts don’t sell phones and phone service, so this is all good news for them.

For lower income families this new program will mainly be another myth where they are playing Tantalus and trying to reach the grapes, always out of reach.

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Making Inclusionary Zoning in the US, Canada, and United Kingdom Really Work

inclusionary-zoning-00166325Little Rock   In New York City recently there was some guarded optimism among affordable housing advocates when the City Council passed modifications requested by Mayor Bill De Blasio to improve the inclusionary zoning requirements. The new rules would hold developers responsible for providing 20 to 30% of all units as affordable housing to families at 40% to 80% of the median income in the city. Unfortunately not all developments will be under these rules, but only those where the developer is asking for a rezoning on height or density from the City. Earlier the city had modified the ordinance so that such developers could not copy the Mumbai scheme and create separate entrances, lobbies, and amenities or even separate abutting buildings which is allowed by the Bombay Municipal Corporation.

In Toronto inclusionary zoning is now a front burner issue because the province of Ontario is transferring the inclusionary zoning authority to the city by 2017. ACORN was able to get Councilor Mike Layton to move a motion through the council for the city’s research staff to develop options for how the city could most effective implement such zoning practices once the opportunity arrives. John Anderson, ACORN Canada’s head organizer in Toronto, is gearing the campaign to be ready and waiting with a “best practices” proposal.

In London the Mayor scoffed at any requirements that would restrain developers around separate entrances and in council after council, as social housing is being converted and new developments are being constructed, affordability is being defined as a percentage not of median income but of market rate. Given the explosion in rental prices in London, market rate has not been a slippery slope for tenants but a mountain climb, essentially pricing low-and-moderate income families out of the market of even so-called affordable units produced through inclusionary zoning.

ACORN in the United Kingdom is looking with great interest at inclusionary zoning as a potential national campaign that can be won locally given how critical the issue of affordable housing is in all of our cities. Head organizer Stuart Melvin noted that the escape hatch that developers have run battalions through in England is basically a cooking-the-books, funny-money scheme. As described in The Guardian:

“Under Section 106, also known as “planning gain”, developers are required to provide a certain proportion of affordable housing in developments of more than 10 homes, ranging from 35–50% depending on the local authority in question. Developers who claim their schemes are not commercially viable, when subject to these obligations, must submit a financial viability assessment explaining precisely why the figures don’t stack up. In simple terms, this assessment takes the total costs of a project – construction, professional fees and profit – and subtracts them from the total projected revenue from selling the homes, based on current property values. What’s left over is called the “residual land value” – the value of the site once the development has taken place, which must be high enough to represent a decent return to the landowner.

It is therefore in the developer’s interest to maximise its projected costs and minimise the projected sales values to make its plans appear less profitable. With figures that generate a residual value not much higher than the building’s current value, the developer can wave “evidence” before the council that the project simply “can’t wash its face” if it has to meet an onerous affordable housing target – while all the time safeguarding their own profit.”

In Bristol, ACORN noted that “we have 3 major developments, in our neighbourhoods, where it looks like the developer is going to get away with 0-7% [affordable units] (and the 7% only after a fight by local activists).”

Developers make their money by building castles in the sky and then using sleight of hand when the reality starts rising from the ground. They routinely play fast and loose around the finances to get the job done, because their incentive is to get out as soon as the paint dries. Too many politicians in too many places are relying on their contributions to pay their bills to win public office making them weak advocates for tenants. It’s hard to believe such a “partnership” will produce accountability on affordable housing without a fight.

This is a battle to the death to see if we can win enough affordable housing to be able to exercise our rights to the city or whether we will be forced out completely.

***

Please enjoy Jim James (with the Sachal Ensemble) Love’s in Need of Love

and William Bell’s The Three of Me.

Thanks to KABF.

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