Following Mitch's Money, Presentation by Doug Price on June 29th, 2020
In the 80s I worked as a branch manager at the People’s Bank and Trust in Earlington, KY.
One of my responsibilities was to make loans. The Bank had a policy of allowing people to provide a bank CD as collateral on loans and would only charge 2% above the rate being earned on the CD. I had an elderly customer who had a $100 CD that she pledged as collateral to borrow $100 in order to have enough money to pay her electric bills in the winter. She would pay the loan off in the spring and re-borrow later that year. We charged her 17% for most of these loans but it is important to note this happened when CD rates were 15%! She paid no more than 2% interest for this loan.
Many of us grew up in an era where people borrowed money from their bank or in some cases family. Over the years our economy has changed with the advent of credit cards and extending into the PayDay lending programs.
What do you know about the PayDay lending business?
In Kentucky the maximum you can borrow is $500 and a lender can only provide up to 2 loans at any one time. The loan term can be from 14 — to 60 days. The APR on a 14 day $100 loan is 459%.
Some PayDay lenders attempt to skirt the law relating to the $500 limit. The Kentucky Department of Financial Institutions has fined 13 PayDay lenders a total of $40,000 in the first 5 months of this year. Most of these were fined due to entering an incorrect SS # into a database that is set up to catch lenders who try to lend more than the $500 limit. In other words “Oh, we entered the wrong number inadvertently otherwise we would not have made a new loan!”
Some PayDay lenders also offer prepaid credit cards with numerous fees. I contacted the KY Dept of Financial Institutions and was told the pre-paid credit card issuer sets and collects the fees, not the deferred deposit licensee. So the PayDay lenders do not receive additional fees but these fees do increase the cost to people who cannot afford a normal banking relationship.
In April of this year Jared Bennett of the KY Center for Investigative Reporting reported the following about PayDay lending:
The industry processed about 20% fewer loans in March than it did the previous March, according to a monthly report provided to the Kentucky Department of Financial Institutions by the loan processing firm Veritec Solutions. That represents a drop in lending of $8.3 million in the short-term, typically high-interest loans.
Ben Carter of the Kentucky Equal Justice Center says it’s too soon to tell why loan volume has decreased in Kentucky.
Expanded unemployment benefits may be reaching more people and helping the newly unemployed cover living expenses. Kentucky’s halt on evictions may mean people are less desperate for immediate cash even after a job loss.
“The reality is that PayDay loans are incredibly expensive,” Carter said.
Meanwhile, the PayDay industry turned to Congress for help to manage the downturn, and a group of lawmakers asked Treasury Secretary Steven Mnuchin and Small Business Administration head Jovita Carranza to allow short-term, high-interest lenders to access funding from the Paycheck Protection Program.
If granted, the lawmakers’ request would allow PayDay lenders offering annual interest rates as high as 459% to tap into forgivable loans with a 1% interest rate.
The Community Financial Services Association of America, a trade group representing PayDay lenders that are active in Kentucky, says that its members are essential businesses providing access to credit.
A spokesman stated “Including these businesses in the Paycheck Protection Program would ensure lenders, many of which are small businesses, are able to keep credit flowing, serving their customers and communities without interruption,”
Critics of the industry say the loans are designed to trap borrowers into a cycle of debt, and research from the Consumer Financial Protection Bureau shows that more than 75% of PayDay loan fees come from people who borrow more than 10 times in a year.
Barkley-Denney of the Center for Responsible Lending, however, says that most PayDay lenders are not small businesses, and that allowing them access to taxpayer funds through the PPP “would be the opposite of what the PPP is supposed to do.”
“The PPP is about building wealth in communities,” Barkley-Denney said. “PayDay lenders are the opposite of that; they strip wealth from communities, they make people less financially secure. So the idea that we’d want to spend taxpayer dollars propping them up is just absurd.”
These things are certain in almost any Kentucky county: there are PayDay lenders, pawn shops and Dollar General stores. Some PayDay lenders also accept pawn items.
Most PayDay lenders in Kentucky are based in South and North Carolina and Tennessee.
It is also certain that as long as PayDay Lending firms are able to pay for the opportunity to talk to Mitch and other politicians then PayDay lending is going to continue.
From 2008–2020 Mitch has received over $140,000 from PayDay lenders. PayDay lenders provide money to both sides of the aisle but all time giving favors Republicans $9.2 million to $5.1 million for Democrats. Add another $3 million in 2019 lobbying too.
Want to bet whether or not PayDay lenders are able to access PPP? Want to bet whether or not Federal elected Republicans will continue to support the industry instead of vulnerable constituents?
Add this to the mix: Advance Financial is a Tennessee based Line of credit lender and does not have stores in KY. Apparently Tennessee only allows for a max APR of 279.59 % APR. Advance Financial has contributed almost $270,000 to Trump in the 2020 campaign cycle.
With Republicans and in particular Moscow Mitch it is all about the Money Money Money.
Before I end this segment I want to update information from my segment last week: Today the Administration and Gilead announced a contract for Gilead to provide 500,000 doses of remdesivir to treat Covid-19. Gilead stated they will have spent over $1 Billion to develop and distribute the drug through the end of 2020. Apparently they started development on this drug 10 years ago but had not brought it to market. By my calculations after receiving payment for the first 500,000 doses they may receive their money back and then the rest is gravy.
HHS Secretary Alex Azar said “To the extent possible, we want to ensure that nay American patient who needs remdesivir can get it.”
Gilead stated that the drug will save money because people stay in the hospital less time.
The cost to hospitals for a treatment course will be $3,120 in the US and $2,340 in other developed countries. This is the cost to the hospitals and so one would think hospitals will have to make some profit. Going forward I think we will need to watch how much Gilead contributes to politicians and in particular the Trump Campaign. Gilead has contributed $17,000 to Mitch and another $5,000 to the Republican National Committee.
The bottom line:
We need to work together to defeat Mitch on November 3, 2020!
Doug Price is a member/treasurer of the MMRC and a regular participant on the #MoscowMitchMonday live stream, discussing Mitch and Money.Â Doug is an advocate of governmental change on the State/Federal level and has periodically worked on Democratic campaigns dating back to the 80s. Follow Doug on Twitter @ PriceDoug