Only in America

It used to be, if you were poor, you could go to your friendly, neighborhood loan shark and take out a loan, even when the cost and structure of a particular loan made it difficult for the debtor to repay it (and when the cost of not repaying the loan might involve going into further debt or, eventually, bodily harm).

But the activities of the loan sharks (much like their other associated businesses) were illegal. Now, they’re called payday loans or deposit advances, and they’re perfectly legal.

Then, the loan sharks could make money off the poor. Today, as Thomas Edsall explains (based on a new study by the Consumer Financial Protection Bureau [pdf]), nothing has changed.

The payday loan industry operates out of storefronts in poor neighborhoods, but a share of its profits filter into some of the nation’s most prestigious banks.

Jessica Silver-Greenberg, a banking and consumer finance reporter for The Times, disclosed on Feb. 23 that major banks, including JPMorgan Chase, Bank of America and Wells Fargo, have been acting as key intermediaries, allowing online lenders to directly collect money from the bank accounts of those borrowers who have accounts.

The intermediary role of the banks is particularly controversial, Silver-Greenberg writes, because

a growing number of the [payday] lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.

Banks have been profiting from their customers’ “shaky financial footing,” according to Silver-Greenberg, by collecting “a cascade of fees from problems like overdrafts.”

Only in America is poverty an opportunity for those with money to make even more money.

Wall Street hold ‘em

The series continues with the Eight of Diamonds: Extend and Pretend.

The practice of allowing businesses (but not individuals) to renegotiate defaulted loans in order to avoid taking losses on the books.