Payday Payola

I've gone after payday lenders before on this blog when Ohio passed a law strictly regulating these vampires. In Kentucky they still operate with impunity and here in Boone and Kenton counties you'll find them in every strip mall and shopping center.  There's a lot of money to be made in usury.

Enough money to lobby Congress to abandon consumer financial protection agencies, for example.

Meet W. Allan Jones, who in 1993 founded Check Into Cash, a pay-day lending chain that says it now has 1,100 stores in 30 states. The company offers short-term loans designed to tide customers over until their next paycheck. But the interest rates can be as much as 400 percent on an annualized basis, meaning that they lead many borrowers to end up digging themselves deeper into debt.

Lately, Congress has been mulling how to structure a new Consumer Financial Protection Agency (CFPA), so as to avoid a repeat of the financial crisis. And reform advocates have argued that increased regulation of pay-day lenders is an essential piece of the puzzle. But after lobbying by an industry group that Jones helped establish, Sen. Bob Corker (R-TN) acted to thwart the new agency's ability to effectively monitor Jones's industry.

As Harper's noted in a story on the pay-day lender industry last year entitled "Usury Country," "a payday loan essentially becomes a lien against your life, entitling the creditor to a share of your future earnings indefinitely."

"It's the craziest business," Jones told a reporter in 2008. "Consumers love us, but consumer groups hate us."

Piecemeal state laws won't stop ghouls like Allan Jones from preying on the weak and destroying them.  Strong national laws will.  But of course, our Senate's been for sale for generations now.

All of this wouldn't amount to much more than a rather severe lapse in taste (although we admit the three-story tree-house sounds cool) were it not for recent events in the U.S. Senate.

There, Corker reportedly has weakened the section of the major financial regulatory reform bill that deals with pay-day lenders. Thanks to Corker, who sits on the Senate Banking committee, the new CFPA will have to get permission from a body of regulators in order to enforce rules against payday lenders and other non-bank financial companies -- a step that consumer groups say will significantly hamstring the agency's ability to crack down on predatory lending practices.

Corker's intervention came after intense lobbying from the Community Financial Services Association (CFSA), a trade group of pay-day lenders created in 1999 by Jones and others in the industry. In the last three months of 2009, CFSA spent $500,000 lobbying Congress on the financial regulatory reform and other issues affecting regulation of the pay-day loan industry, according to disclosure records examined by TPMmuckraker. (One of the top Washington lobbyists hired by CFSA, Wright Andrews of Butera & Andrews, was also the prime lobbyist for the sub-prime mortgage industry earlier this decade.)

Jones is a longtime backer of Corker -- as well as of several other lawmakers, from both parties, on the Banking committee. Since 2001, Jones, his relatives, and his employees, have contributed $31,000 to the campaigns of Corker, a former Chattanooga mayor, according to the New York Times.

The pay-day lenders say it was the banks, not them, that caused the financial turmoil, so they shouldn't be penalized for it. But consumer groups, and their allies in Congress and the Obama administration, argue that the competitive pressure on the banks from less regulated sectors like the pay-day lenders prompted the banks to lower their lending standards, helping to create the mortgage crisis. And they add that the predatory practices of the pay-day lenders merit greater regulation in their own right.

As for Jones, who did not immediately respond to a request for comment, he says he's always looked out for the less fortunate. He once explained that his father had taught him: "I should always give more than my fair share."

And he does.  He just expects 400% interest on it.  And in states without payday lending regulation (like Kentucky) the situation will only get worse as legalized loan sharking destroys more and more Americans who fall through the cracks.