Sunday, January 15, 2006

Bill Shipp and Predatory Lending

Bill Shipp compliments Sonny Perdue today, while trying as hard as he can to raise awareness of all the issues that could come back to make the Gubner’s path to re-election more difficult.  Among the issues Shipp targets are: illegal immigration, school funding, ethics, health care, and predatory lending.

It’s that last one that we wanted to say a little bit about today.  Remember the times we’ve said that affordable housing might be the sleeper campaign issue of 2006?  We might be wrong on that; it just might be predatory lending.  

A few years ago, in the last years of the Roy Barnes administration, Georgia had one of the toughest predatory lending laws in the nation.  Not surprisingly, that was one of the first pieces of legislation undone by the new Republican majority when they came to power, and since then, Georgia has been a haven for predatory lenders.

Interestingly enough, we’ve always thought of predatory lending in terms of houses or cars.  Shipp puts it in terms of payday loans and car title loans, and we’re not 100% sure that even though smaller in scope, the title loans and paycheck loans aren’t the bigger problem.  Put it this way: how many poor people even get to the point of buying their own homes?  In any event, we’d like to address it from the standpoint of those smaller loans, since we’ve had a little experience with that end of this particularly shameful little industry (fortunately not as a borrower.)

Now the more conservative free marketers out there are already revving up to argue with us on this one.  “It’s a free market economy,” they’ll harrumph, “and that means people are free to make their own choices, even if they are stupid choices.”  The kicker is they’re right.  People should be free to make stupid choices.  Heaven knows they are, and heaven knows they do.  But the thing is, you and I are paying for those stupid mistakes, and the United States is not a pure capitalist economy, anyway.  

We’ve got no problems with entrepreneurs making an honest dollar.  But, the key word here is “honest.”  25% interest rates and hidden fees are not, in our opinion particularly on the up-and-up.  The fact is, the loan racket is just that, a racket.  Particularly egregious is the title loan racket, where the object is not to loan money but to obtain as many cars as possible through repossession, and sell them.  For example, a borrower comes in to borrow $500.00 from you for three months, and puts down the titles to their pickup truck or whatever as collateral.  After those three months are up, with the exorbitant interest rate and the fees involved, that $500.00 is closer to $1,200.00.  And, if the borrower doesn’t get the payments made in time, then the lender gets to repossess the truck, and sell it for a few thousand dollars, all from an initial outlay of $500.00.  Pretty nice business model, if you ask us.

We’re all in favor of open markets, and giving everybody a chance to make their bundle.  But the debt problem in Georgia, and in America is rapidly becoming endemic.  It’s time that the government did something.


Charles R said...

What counts as the government "doing something" about predatory lending?

What counts as someone not in the government as "doing something" about predatory lending?

Dawg Corleone said...

And is anyone proposing anything to cope with predatory borrowing?

All of us pay that for that, by the way.

gap said...

I don't see how this particular area of predatory lending will resonate with many voters. Proposing a bill might garner a little bit of good pub, but won't be a sleeper issue.

Publius said...

" And is anyone proposing anything to cope with predatory borrowing?"

That seems like a good point, but what exactly do you mean by predatory borrowing? People who borrow with no intention of repaying?