Think the companies that pass out payday loans care about their costumers? That seems unlikely now that one of the top officials for the country’s largest payday lender, Advance America, has basically outlined the industry’s methods for hooking customers into an endless series of high-interest-rate payday loans. The Los Angeles Times recently reported on the confidential e-mail messages that Dan Mart, a divisional director of operations for the company, wrote to his employees. The underlying message of these e-mails? Advance America makes its money by making sure that borrowers keep taking out small loans with incredibly high interest rates.
According to the Los Angeles Times, Mart wrote his e-mails in response to a proposal, since scuttled, in the financial reform package now headed toward Pres. Obama’s desk that would have limited the number of payday loans that payday lenders could make to their customers in a specific period of time. Mart wrote in his messages that after customers repay their loan, they’ll ask for a new one. At this time, Mart wrote, payday lending employees were supposed to tell their customers that they couldn’t make another loan to them because the government has put them out of business. Mart then advised his employees to tell customers to write their senator and congressman. There are two problems with Mart’s e-mail. First, the information in it is incorrect. Secondly, it underlines the business strategy of payday lenders: They only succeed when consumers continually take out their loans. And when consumers do this, they rarely escape the cycle of debt.
The Failed Amendment
Mart was incorrect. The proposed amendment by Sen. Lay Kogan, a Democrat from N.Carolina, would have forbidden payday lenders from issuing more than six loans to any one borrower in a 12-month time. That’s not nearly the same as telling payday lenders that they can’t make more than one loan to a customer. That point is moot, though. The payday lending amendment is no longer part of the financial reform package that Obama will sign.
Credit a strong campaign by the companies that issue payday loans for scuttling the amendment. The association that serves payday lenders sent memos to these businesses across the country, requesting that they ask their customers to write letters and send e-mail messages to their federal politicians. The industry trade group also put out a statement saying that such an amendment would deny emergency loans to hardworking Americans. That all sounds good. But it’s hard to deny the message implied by Mart: Payday lenders want to protect their profits, and that means hooking consumers into taking out a string of high-interest loans.