Billed as a "quick cash" solution for life's unexpected financial emergencies, payday lenders peddle this modern-day snake oil to 12 million hardworking men and women each year. For too many, a cycle of seemingly inescapable debt follows. They have fallen victim to an industry that has used harassment, intimidation, and threats to keep that cycle spinning and bring in more than $46 billion annually.
When the Consumer Financial Protection Bureau (CFPB) was created in 2010 as part of the Wall Street Reform and Consumer Protection Act, it was charged with overseeing the payday lending industry among other responsibilities. Just a few years later, the CFPB released startling research detailing the damaging effects payday lending has on the financial wellbeing of consumers. Among other things it found that only 15 percent of borrowers are able to repay their loans on time, half of all borrowers take out at least ten loans in a row, and a large percentage of borrowers end up paying more in fees than the total amount they actually borrowed.
The debt cycle illustrated by the CFPB's research is by design. In fact, an internal company training manual for payday lending giant ACE Cash Express even depicted the cycle of a payday loan dubbing it, "The Loan Process." Using a circular graphic that resembles an image commonly associated with recycling, the manual shows a consumer taking out a payday loan, spending all of the money, not having the ability to repay the loan, and then either taking out another loan or having their account sent to collections and returning to the beginning of the cycle by taking out a new loan to get their account out of collections.
Furthermore, in a private email obtained under the Freedom of Information Act, Hilary Miller -- chair of the industry-financed Consumer Credit Research Foundation -- confessed to an Arkansas Tech University professor his organization was funding to study payday loans that "consumers mostly either roll over or default; very few actually repay their loans in cash on the due date."
This is not about a one-time loan to help cover an unexpected emergency. Research from The PEW Charitable Trusts found most payday loans (nearly 70 percent) are used to cover recurring everyday expenses like a cell phone bill, while only 16 percent of loans are used for emergencies. It is exactly what payday lenders are counting on -- customers who are already having trouble meeting their day-to-day living expenses who then take out a payday loan only to find it nearly impossible to pay off without taking out another loan.
It is no wonder that the same PEW research found Americans favor more regulation of the payday lending industry by a margin of 3-to-1. That, along with the impact these financial products have on everyday Americans may explain why the CFPB stepped forward earlier this year with a proposed framework for tough new nationwide rules regulating payday loans.
Who could possibly defend such an unpopular and unscrupulous industry?
While you will rarely hear a politician defend payday lenders unless they are pressed on the subject -- after all it is hard to explain why 500 percent interest rates are a good thing -- nearly all of the Republican candidates for president opposed the law that created the CFPB and have signaled they would disband it if given the opportunity.
So, what does it mean that this gaggle of Ayn Rand wannabes who oppose any minimum wage let alone increasing it, and think American wages are just too high, are opposed to a government entity that has processed more than 700,000 complaints against powerful financial institutions and returned $10.1 billion to more than 17 million consumers?
It means the roughly six dozen candidates for the Republican presidential nomination are standing up for credit card companies, student loan processors, check cashers, payday lenders, debt collectors, shady mortgage lenders, big banks and a host of other moneyed special interests at the expense of Americans who are still struggling to make ends meet despite the Obama administration's record 68 straight months of job growth.
Payday lenders spent more than $15 million during the last election to lobby and elect Members of Congress. If the CFPB comes down hard on the industry with tough new rules as is expected, you can bet they will spend even more during this election.
If one of these Republicans is elected in 2016, payday lenders will have a grand old party to celebrate and none of us will be invited.