Race car driver and loan shark Scott Tucker and associates owe the Federal Trade Commission $1.27 billion for deceptive, predatory payday lending practices:
In a decision late on Friday, Chief Judge Gloria Navarro of the federal court in Las Vegas, Nevada said Tucker was “specifically aware” that customers often did not understand the terms of their loans, and was at least “recklessly indifferent” toward how those loans were marketed.
“Scott Tucker did not participate in an isolated, discrete incident of deceptive lending, but engaged in sustained and continuous conduct that perpetuated the deceptive lending since at least 2008,” Navarro wrote.
The judge also barred Tucker from engaging in consumer lending [Jonathan Stempel, “U.S. Judge Says Racecar Driver, Others Owe $1.27 Billion in Payday Case,” Reuters via MSN.com, 2016.10.03].
Tucker will need to shut down his online lending portals, like United Cash Loans, whose fine print advertises a representative APR of 391%, and One Click Cash, which says borrowers don’t find out their interest rate until they get to the last page before they sign. According to a criminal indictment issued last February, Tucker has duped 4.5 million customers with interest rates of up to 700%. That indictment says Tucker would tell customers their $500 loan would cost them only $150 in finance charges but then charged them $1,425.
Tucker played the familiar “rent-a-tribe” game, disguising his multiple payday loan companies as tribal businesses in Nebraska and Oklahoma while maintaining his real base of operations in Overland Park, Kansas. Employees at the Overland Park office were told to lie to customers about their location. One Click Cash offers this explanation of whose laws cover its loans:
Your loan agreement will be governed by and construed in accordance with the laws of the Santee Sioux Nation of Nebraska and all applicable federal laws. Federally recognized Indian Tribes are sovereign and possess sovereign immunity and are not subject to state law absent congressional authorization. Our loan applications and loan agreements state that the laws of your state of residence and/or the state where you apply for a short term loan will not apply to any agreement you enter into with us [One Click Cash, FAQ, downloaded 2016.10.04].
On March 31, Judge Navarro froze Tucker’s assets, which included an $8-million second home in Aspen, six Ferraris, and four Porsches. The court allowed him to access first $75,000 for two months of living expenses, then $8,000 a month. Tucker apparently abused even that generous agreement. The asset freeze also forced Tucker to switch to court-appointed attorneys.
As Steve Hildebrand, sponsor of the 36% rate cap on payday loans on South Dakota’s ballot, said at the September 15 ballot question forum, payday loan sharks do not contribute meaningfully to South Dakota’s economy. The loan sharks pay pittance wages to employees required to engage in deceptive practice. The loan sharks raid the paychecks of low-income workers who would otherwise spend their every dollar in local stores boosting our economy. The loan sharks then export their money from South Dakota to buy extravagant homes, race cars, jets, and other luxuries purchased on the exploitation of people in desperate situations.
Given such predatory (and, in Tucker’s case, criminal) behavior, we should feel no moral compunction about putting Tucker and other payday lenders out of business by voting Yes on IM 21 and No on Amendment U.
Finally, some justice in the world. Although, I’m sure there will be a long appeals process to play out yet.
We cannot allow loan sharks to prey on South Dakotans. Vote for your Democratic candidates, YES on Referred Law #21, and NO on Amendment U for USURY.
Todays Argus Leader has an article about Meta Bank buying out an eastern bank for tens of millions. That bank they bought has payday loans and tax refund loans. Read it, they sure can sugar coat a payday loan company. Meta bank is the one that Thune was on the board when they had the biggest bankruptcy in South Dakota history. Thune was on the audit committee so knew or should have known about the problem. But as a slick deceiver he claimed he was not on the loan committee so it was not his fault. I talked to a couple of bank examiners and when I told them my experience of what bank examiners do when I was a farmer in the farm crisis, then I said that only if a Politian with the power of Thune to pull heavy duty cables in the government could such a bad loan go so far. So Thune went from stopping proper regulations to stop a bad loan to now the same bank he has ties with is buying up huge payday lenders. There is a reason the Norwegiens have the work ‘Ufda”.
If any of you are interested, the Freakonomics guys did a pretty enlightening examination of payday lending.
Kwhite an article, Wayne B. I ended up as confused as I began.
The Freakonomics team also helpfully points out some of the researchers the payday lenders evidently pay to crank out helpful research:
http://freakonomics.com/podcast/industry_ties_to_academic_research/
Mike, I’ll admit I was in lockstep with Cory on IM 21. But I had some nagging questions about how pernicious pay day lending really is, and what happens to people who take out pay day loans, plus what would happen to them if we did actually limit the interest rate to 36%.
Cory, the Freakonomics folks did talk about the editorial oversight issue during the hour long podcast. Thanks for the followup. It does add a healthy dose of skepticism to the articles published by Miller.
I also have read through some of Pew’s publications. They also have an agenda.
The Freakonomics guys ask an important question at the end of the podcast: If 36% rate caps kill the payday loan industry (which the data indicate it will – payday lenders average single digit profit margins compared to typical financial institutions’ average of over 30%), then what financial lending opportunities will be available for people who need short term financing? If nothing exists to fill the void, will people be worse off? Pew’s survey suggests these folks think they can tighten their belts and get by without. But Pew has no data to show what actually happened.
From the Freakonomics podcast Zinman (who’s academic integrity doesn’t seem to be in question) studied Oregon’s PDL rate caps and found folks who typically borrowed were worse off, though in another study he performed, he found the opposite. That tells me it’s a pretty mixed bag.
The bigger challenge is, looking at the Pew data, 69% of payday loan users take out their first loan to cover recurring expenses rather than a one-time emergent expense. I’m not sure that leaves a lot of room for belt tightening, and the data available is ambiguous about what actually happens.
I certainly don’t want people to be driven to bankruptcy by payday lending. But I also don’t want them to get evicted because they couldn’t make the rent on time.
I think, from a policy standpoint, this issue needs more consideration.
I’ll still definitely vote no on Amendment U, but I’m no longer certain I should vote yes on IM 21.
Thanks for summarizing the podcast, Wayne.
Like Pew, we all have an agenda. We should wear our agendas on our sleeves so everyone understands where we are coming from. That makes for more honest discussion.
I’m glad we’re still solid on U. It’s important for justice reasons beyond the specific payday lending issue that U go down hard.
On other options: Hildebrand made a good point that, in a way, payday loans look like an easy out. People can go get that anonymous loan without letting their friends and family know they’re in trouble. I’d suggest that taking away that seemingly easy option encourages people to swallow their pride and look for help from people they trust. I’m not speaking from research, but I’ll suggest taking away the predatory option forces people to seek safer options.
Then again the article said 60% of the loans are paid back on time, meaning that billions in profits come from the 40% least able to pay.
These outfits can always find a way around low interest restrictions according to this report-
http://democrats.financialservices.house.gov/uploadedfiles/06.15.2016_committee_report_skirtingthelaw_final.pdf
“The bigger challenge is, looking at the Pew data, 69% of payday loan users take out their first loan to cover recurring expenses rather than a one-time emergent expense.”
I agree that payday loan customers are most often using these loans for recurring expenses. They are simply kicking the can down the road, putting off the day of reckoning. If you can’t cover recurring expenses, how does taking out a loan at 550% interest improve your position? It doesn’t. It simply gets you to dig the hole that you are in deeper and deeper until you can never get out.
Instead of forcing people to confront their financial difficulties when they are in a small hole and could do something to fix their finances, payday lending offers them a short term solution that becomes a longer term insurmountable problem.
The typical argument in favor of payday lending is that people need cash for a one-time unforeseen emergency expense. But at least 69% of people don’t use it for that. They are trapped in a form of involuntary servitude to the payday loan sharks. This should not be legal. If 36% interest is not sufficient, this business model on the backs of the poor and desperate needs to go away. Vote yes on IM 21!
Why people go to a payday lender isn’t my concern. It’s their business. It’s only my business if they wind up needing public assistance because they fell into a payday loan lending cycle they can’t get out of. But that’s a small percentage of payday loan users who fit that. Over a third of payday lenders take out only one loan and pay it back successfully. The remainder average 8 loans, but apparently it’s a small subset – 10 – 15% – who take out a considerable number of rollovers and get caught in the cycle of debt.
We should be careful to check any inclination to exercise paternalistic “we know what’s best for you” attitudes for folks who use the financial services of payday lenders. Cory, you’re very pugnacious when it comes to the right to choose abortion, and poo-poo people who take a paternalistic view that women can’t or shouldn’t be allowed to make that decision on their own. I think you should check your assumptions about this topic and ask if you really should intervene in people’s economic decisions. Surely, if people can make choices about ending a life growing inside them, they can make decisions about whether or not to take out a short term loan with very high annualized interest rates.
That said, I still believe the payday lending arena could be improved with careful regulation.
Apparently Colorado has had success with modifications to payday lending structures which have increased lending efficiency and
Colorado mandated a minimum loan duration of 6 months, and installment payments. The number of PDL stores decreased by 53%, but the number of customers per store more than doubled. PDL centers were therefore able to work on narrower margins, essentially charging about 115% interest. Loan rollovers decreased 40%.
I think Colorado’s efforts demonstrate a better policy measure – limiting the damage payday lenders can do to a vulnerable subset of their customer base, but still allow for a financial service to be available which is not offered by more traditional financial institutions.
However, it’s pretty clear the 36% rate cap will completely eliminate short term lending, which means the elimination of a viable tool for dealing with financial distress (albeit an admittedly dangerous one). Keep in mind 19 million households (5% of the U.S.) use these services every year. Eliminating payday lending entirely will not, the body of research concludes, improve financially vulnerable households’ ability to weather financial shocks. Some actually wind up worse due to overdraft fees and other financial penalties.
– Markup percentages to be used for 2012
Category(1) Gross Margin Markup
Percentage
(2010 Stats) (2)
Percentage(3)
Cigarettes 15.21% 18%
Other Tobacco 31.72% 46%
Packaged Beverages(non alcoholic) 40.22% 67%
Beer 20.51% 26%
Wine 28.18% 39%
Liquor 25.68% 35%
Edible Grocery 44.66% 81%
Non-edible Grocery 35.28% 73%
Perishable Grocery 35.69% 55%
Frozen Foods 44.96% 82%
Packaged Ice Cream/ Novelties 48.01% 92%
Candy 51.40% 106%
Salty Snacks 38.51% 63%
Packaged Sweet Snacks 33.08% 49%
Alternative Snacks 41.41% 71%
Fluid Milk Product 30.23% 43%
Other Dairy and Deli 40.03% 67%
Packaged Bread 31.68% 46%
Health & Beauty Care 52.95% 113%
General Merchandise 35.07% 54%
Automotive Products 46.49% 87%
Publications 22.48% 29%
Ice 78.43% 364%
Food Service
Food Prepared On-Site 53.41% 115%
Commissary/ Packaged Sandwiches 36.20% 57%
Hot Dispensed Beverages 59.61% 148%
Cold Dispensed Beverages 48.45% 94%
Frozen Dispensed Beverages 49.39% 98%
Convenience store markups for 2012 for comparison.
I can’t disagree with this, but feel compelled to point out it’s apparently only 10-15% who really get into a long term bind with continual rollovers.
Here’s the thing. It costs an average of $66 to borrow $300 for two weeks in South Dakota. If my choices are writing $300 worth of bad checks (at $35 per overdraft), then it’s actually cheaper to borrow that money if I need to write three $100 checks than it is to take the overdraft penalties.
Say Mike, where are you going with the convenience store markup?
I wondered about that myself. Fortunately I can place the blame on Grudz from outer space and then deny I blamed him.