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Payday Lenders Count on Trapping Customers in Abusive Cycle of Debt

As we breathlessly await Monday’s court hearing in the dilatory lawsuit one payday lender has filed to block the interest-rate-cap ballot initiative, let’s keep in mind this example of the sleaziness of the predatory usury industry.

After hearing the usual apologists for big-money predators focusing on the goodness and decency of payday lenders gracing society with a necessary service rather than discussing the legal merits of the lawsuit, I sought perspective on the merits of the industry from South Dakotans for Responsible Lending, the coalition of South Dakota neighbors seeking the 36% rate cap, who unlike the litigant in the lawsuit don’t go erasing their online profile the moment they get talked about online. South Dakotans for Responsible Lending pointed me toward this example of what fine, upstanding neighbors payday lenders can be.

In July 2014, the Consumer Financial Protection Bureau took $10 million out of the hide of ACE Cash Express for predatory lending practices:

“ACE used false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt,” said CFPB Director Richard Cordray. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back. The CFPB was created to stand up for consumers and today we are taking action to put an end to this illegal, predatory behavior.”

…The Bureau found that ACE used these illegal debt collection tactics to create a false sense of urgency to lure overdue borrowers into payday debt traps. ACE would encourage overdue borrowers to temporarily pay off their loans and then quickly re-borrow from ACE. Even after consumers explained to ACE that they could not afford to repay the loan, ACE would continue to pressure them into taking on more debt. Borrowers would pay new fees each time they took out another payday loan from ACE. The Bureau found that ACE’s creation of the false sense of urgency to get delinquent borrowers to take out more payday loans is abusive [Consumer Financial Protection Bureau, “CFPB Takes Action Against ACE Cash Express for Pushing Payday Borrowers Into Cycle of Debt,”, 2014.07.10].

To demonstrate ACE Cash Express’s intentional abuse of customers, CFPB posted this page from an ACE Cash Express training manual for new employees:

ACE Cash Express training manual for new collections hires, 2011.03.02, p. 16—posted online by Consumer FInancial Protection Bureau, July 2014.
ACE Cash Express training manual for new collections hires, 2011.03.02, p. 16—posted online by Consumer FInancial Protection Bureau, July 2014.

Get low-income folks to take a short-term loan, count on their inability to pay it back, then strong-arm them into taking another loan—doesn’t sound very neighborly or necessary to me.

ACE Cash Express has often teamed with Select Management Resources, the outfit suing to blog South Dakota’s rate-cap initiative, to lobby and donate to politicians to protect their hunting grounds—er, business interests. If payday lenders like ACE Cash Express will deal unscrupulously with their customers, they would seem like to deal unscrupulously with our courts and our local citizen activists.


  1. Steve Hickey 2015-06-13 09:57

    Thanks for posting this, Cory. It should make a decent person sick. They can spin it all they want, that these are one time loans to people needing a quick financial lift but that is not their business model. They wouldn’t be in business is that is what was going on.

    It’s an defective financial product intentionally designed to be a debt trap deceptively marketed to the financially desperate and unsophisticated barely holding on to the fringes of our economy. It is a mouthful but I say it every chance I get.

  2. Mr. Sol 2015-06-13 10:07

    Government is not the solution to our problem, government is the problem. President Ronald Reagan 1981.

  3. mike from iowa 2015-06-13 10:13

    Raygun and trickle down economics was the problem then and it still is today. Payday lendsharks = vulture capitalism at its worst. As stated before one of the few industies that can charge egregios interest rates and has the backing of the laws and courts to be their enforcers.

  4. jerry 2015-06-13 12:24

    Government is always the solution to the problem. We have 50 states and several territories, with that in mind, there are times when some of these entities want to go their own way. If not for the government to reign in these rascals when they go off the rails, we would not have the solidarity it takes to be a nation. Sovereign states are just another name for nothing left to loose, and its a pity they are taken seriously. The payday lenders are raping the poor out of their meager earnings. Raise the wages and lower the interest these vampire bankers put on and we would be able to have nice things.

  5. Dave 2015-06-13 13:29

    Payday lenders are the zebra mollusks and Asian carp of the financial ecosystem — an invasive species.

  6. Roger Elgersma 2015-06-13 13:56

    They say they need to charge that much to stay in business. Well Brennan has charged much more than enough to stay in business. He can spend millions on big dreams from the money of the poor. Sanford said he had to charge that much to ‘survive’. Being worth two billion is more than surviving. As Hickey says, it is a ‘debt trap’, that the vulnerable of society can not get out of.

  7. Steve Hickey 2015-06-13 14:29

    It’s Saturday so maybe the apologists for the industry who we heard from the other day are out enjoying their weekend. When they get back (Daniel Buresh, Bill Dither, Nathan and Troy Jones) I hope they will look at this chart and explain to us how it is not what it seems, how this industry is actually there to help the poor, how there is a place for these legit businesses on our main streets and government has no role in protecting consumers from those who would intentionally and deceptively fleece them.

    Or better yet, Erin Ageton, let’s hear from you. My guess is the industry needed a local face and they found yours. My advice to you and all others working in this industry in SD is to jump ship now. Right now there are thousands of jobs available to you in our state, over 2200 in Sioux Falls alone.

  8. Roger Cornelius 2015-06-13 15:05

    What republican fail to recognize when they quote Reagan’s, “government isn’t the solution to our problems, they are the problem”, is that Reagan was the main man in charge of that government for 8 tedious years.
    If anything, Reagan has indicted himself with that clever quote.

  9. Kurt Evans 2015-06-13 15:20

    Cory wrote:
    >“After hearing the usual apologists for big-money predators [link to Pat Powers blog post] focusing on the goodness and decency of payday lenders gracing society with a necessary service …”

    In the linked post Powers wrote: “Ugh. Should a group of people who want to tell others how they should conduct themselves be able to make a fairly benign behavior illegal because they don’t like it? Should they be able to say ‘don’t do that, because I don’t think that’s good for you, and I’m the decider.’ … So, here come the nanny staters with no solution other than to punish the whole for bad decisions of a few… Promoting a ban on things you don’t like is little more than sticking your head in the sand and saying ‘problem solved.’”

    Nothing seems to bring out the libertarian in Powers like an effort to ban something he’s done, such as payday borrowing or texting while driving:

    Ironically, less than an hour after Powers posted the statements quoted above, he published a lengthy screed against decriminalizing marijuana:

    “Don’t do that, because I don’t think that’s good for you, and I’m the decider.”

    When an anonymous commenter pointed out the cognitive dissonance, Powers responded that “there’s a bit of difference between lending money and illegal drug use.” Well, yes, there is. One important difference in this case is that many payday lenders are engaging in the kind of fraud Cory documents above, and even most libertarians agree that there’s a role for government in preventing fraud.

    I’m not hearing any claims that no one ever benefits from payday loans. The moral dilemma lies in the fact that those who benefit from them are often reaping those benefits from the fraudulent exploitation of those who don’t.

    I’m not even endorsing Steve’s ballot measure, but I’m glad he’s drawing attention to the issue, and I’m trying to draw attention to the hypocritical double standards applied by some of his opponents.

  10. Mr. Sol 2015-06-13 16:02

    All right Cory, I believe this issue is one of freedom of contract. On economic freedom (which I believe this is) , President Reagan also had this to say:

    It all comes down to this basic premise: if you lose your economic freedom, you lose your political freedom and in fact all freedom. Freedom is something that cannot be passed on genetically. It is never more than one generation away from extinction. Every generation has to learn how to protect and defend it. Once freedom is gone, it’s gone for a long, long time. Already, too many of us, particularly those in business and industry, have chosen to switch rather than fight.”

  11. larry kurtz 2015-06-13 16:05

    fits south dakota to a tee.

  12. mike from iowa 2015-06-13 16:29

    Raygun started taking economic freedom from the middle class and poor by transferring wealth upwards. It has continued unabated ever since,getting worse each passing year. Imagine- the 1% don’t want and feel they have a god given right not to pay their share of taxes to protect America. All they want to protect is their supply of the world’s wealth and wingnuts are more than happy to give it to them.

  13. caheidelberger Post author | 2015-06-13 19:32

    Mr. Sol, you’re going to have trouble reducing this issue to a three-word principle. We could sign contracts to trade slaves, hookers, drugs, roasted baby flesh….

    I agree that political freedom and economic freedom are closely wedded. If I don’t have economic freedom—if I can’t afford to feed my children, let alone take time to attend my city commission meeting—I don’t have political freedom.

    I contend that the payday lenders are taking the economic freedom of their prey. Those folks aren’t being liberated from their poor economic conditions; payday lenders are taking advantage of poor folks’ desperation to push them deeper into debt, economic salvery, and thus political slavery.

  14. Nick Nemec 2015-06-13 20:54

    Some people aren’t responsible enough to handle any type of loan, payday or otherwise. And those people are the ones the payday places prey upon. They would be better off living paycheck to paycheck than getting an advance or two and owing their soul to the company store forever.

    What has gone unsaid in this debate is that South Dakota has sown the wind of low wage jobs and is now reaping the whirlwind.

  15. Deb Geelsdottir 2015-06-13 22:25

    I’m so sick of the rampant greed that seems to be overwhelming this country and turning it into something unrecognizable. I get hope and encouragement from each individual who recognizes how un-American and un-Christian it is.

  16. caheidelberger Post author | 2015-06-14 09:39

    Kurt, you are right on the money with your observation on the DWC and GOP double standard. They adopt their anti-nanny-state principle only when it gives a noble gloss to their preferred vices. The moment they want to marginalize other citizens for behaviors of which they don’t approve (smoking pot, making reproductive choices), they swing their own nanny-state club with zeal.

  17. caheidelberger Post author | 2015-06-14 09:43

    More cognitive dissonance: Republicans are telling us that their profiteering friends (lobbyists! donors!) ought to be able to get low-income folks to plunge as far into debt as they choose. Yet they tell us that the federal government should operate under a balanced-budget amendment. Hmm….

  18. Nathan 2015-06-14 10:24

    Never said they are not shady, just not sure I believe they should be regulated in the ways that are being proposed. For SHORT TERM 36% APR including all fees makes zero sense to any business that is lending money for 2 weeks.

    What if there was a middle ground, any way to say allow a certain percentage of the loan as a initial fee + the cap of 36% APR for anything that is “rolled over” to another term, but limit the ability to charge that fee over and over again? For example, I borrow $100, they charge me $30 fee PLUS 36% APR for the two week loan, if I can’t pay it back in two weeks it continues another two weeks at that APR but there is a limit on what additional fees can be charged at this point?

    There IS a market for actual short term loans, and even with some limits it seems it could be profitable, but there is no way they could loan money for 2 weeks at 36%APR and actually keep their doors open.

  19. Doreen Allison Creed 2015-06-14 21:07

    Pay day lenders are simply vulchures.

  20. rollin potter 2015-06-15 07:21

    Doreen, they are no different than the scum and vulchers running the power ball, scratch tickets and lottery machines that pray on the poor and down and out people!!!!!!!!!!!!!!

  21. Timothy L Fountain 2015-06-15 12:11

    Ya know, that 300% interest is important because without it they won’t have the money to sue opponents. Think I’ll open my own Pay Day Loan place and call it “Screw ‘n’ Sue.”

Comments are closed.