How Banks Slid Into the Payday Lending Business

Meet the new payday loan. It looks a lot like the old payday loan.

Under the Obama administration, the Consumer Financial Protection Bureau attempted to rein in abusive payday lending, by, among other measures, forcing lenders to ensure borrowers had the means to pay back their loans. The Trump administration, under interim CFPB Director Mick Mulvaney, is looking to roll back those rules and give payday lenders, who as an industry donated significant amounts of money to Mulvaney when he was a congressman, more room to operate. A high-profile rule proffered by the CFPB to govern payday loans is under review, and Mulvaney’s CFPB has also dropped cases the bureau had previously pursued against payday lenders.

Payday lenders have taken notice, and are already adapting their business to evade regulation. Meanwhile, small-dollar, high-interest lending has migrated to other parts of the financial industry, including traditional banks. Banks aren’t actually calling their loans “payday loans” — preferring names like “Simple Loan” — but the problems, including high costs and the potential for creating a debilitating cycle of debt, are largely the same.

Payday loans are short-term loans, so named because they are meant to be paid back when the borrower earns her next paycheck. The interest rates on these loans are high, running up to 400 percent or more. (For comparison’s sake, a borrower will pay about 5 percent interest on a prime mortgage today, and between 15 and 20 percent on a credit card.) Payday lenders tend to cluster in areas where residents are disproportionately low-income or people of color, preying on economic insecurity and those for whom traditional lending and banking services are unavailable or insufficient.

It’s not only those high interest rates that make the loans lucrative for lenders and damaging for borrowers. Much of the income payday lenders derive comes from repeat business from a small population of borrowers who take out loan after loan after loan, engaging in so-called “churn.” According to the CFPB, more than 75 percent of loan fees come from borrowers who use 10 or more loans per year. These borrowers wrack up big fees that outweigh the economic benefit provided by the loans and become stuck in a cycle of debt.

This is serious money we’re talking about: Prior to the Obama administration’s attempt to more strongly regulate the industry, payday lenders  made some $9.2 billion annually. That total is down to about $5 billion today, even before the Obama team’s rules have fully gone into effect. Meanwhile, many states have also taken positive steps in recent years to regulate payday lending. (The loans are also outright banned in some states.)

However, that doesn’t mean payday lending is going out of style.

Payday lenders seem well aware of the state of regulatory flux in which they find themselves.

For starters, old payday lenders have revamped their products, offering loans that are paid in installments — unlike old payday loans that are paid back all at once — but that still carry high interest rates. Revenue from that sort of lending increased by more than $2 billion between 2012 and 2016. The CFPB’s rules don’t cover installment-based loans.

“They claim that these loans are different, are safer, are more affordable, but the reality is they carry all the same markers of predatory loans,” said Diane Standaert, director of state policy at the Center for Responsible Lending. These markers include their high cost, the ability of lenders to access borrowers’ bank accounts, and that they are structured to keep borrowers in a cycle of debt. “We see all of those similar characteristics that have plagued payday loans,” Standaert said.

Meanwhile, big banks are beginning to experiment with small-dollar, short-term loans. U.S. Bank is the first to roll out a payday loan-like product for its customers, lending them up to $1,000 short-term, with interest rates that climb to 70 percent and higher. (Think $12 to $15 in charges per $100 borrowed.)

Previously, American’s big financial institutions were very much discouraged from getting into small-dollar, high-interest lending. When several major American banks, including Wells Fargo and Fifth Third, rolled out short-term lending products prior to 2013, they were stopped by the Office of the Comptroller of the Currency, which regulates national banks. “[These] products share a number of characteristics with traditional payday loans, including high fees, short repayment periods, and inadequate attention to the ability to repay.  As such, these products can trap customers in a cycle of high-cost debt that they are unable to repay,” said the OCC at the time.

In October 2017, however, the OCC — now under the auspices of the Trump administration — reversed that ruling. In May 2018, it then actively encouraged national banks to get into the short-term lending business, arguing that it made more sense for banks to compete with other small-dollar lenders.  “I personally believe that banks can provide that in a safer, sound, more economically efficient manner,” said the head of the OCC.

However, in a letter to many of Washington’s financial regulators, a coalition of consumer and civil rights groups warned against this change, arguing that “Bank payday loans are high-cost debt traps, just like payday loans from non-banks.” Though the terms of these loans are certainly better than those at a traditional payday lender, that doesn’t make them safe and fair alternatives.

Per a recent poll, more than half of millennials have considered using a payday loan, while 13 percent have actually used one. That number makes sense in a world in which fees at traditional banks are rising and more and more workers are being pushed into the so-called “gig economy” or other alternative labor arrangements that don’t pay on a bi-weekly schedule. A quick infusion of cash to pay a bill or deal with an unexpected expense can be appealing, even with all the downsides payday loans bring.

Payday lenders seem well aware of the state of regulatory flux in which they find themselves; they have made more than $2 million in political donations ahead of the 2018 midterm elections, the most they’ve made in a non-presidential year, according to the Center for Responsive Politics.

That’s real money, but it’s nowhere near as much as borrowers stand to lose if payday lending continues to occur in the same old way. In fact, a 2016 study found that consumers in states without payday lending save $2.2 billion in fees annually. That’s 2.2 billion reasons to ensure that small-dollar lenders, big and small, aren’t able to go back to business as usual.



North Carolina Legislators Want to Add Tax Breaks for the Rich to the State Constitution

North Carolina Republicans have been on a mission over the last few years to remove every shred of progressivity from their state’s income tax. They’ve largely succeeded, passing several rounds of tax cuts since 2013 that, among other changes, turned the income tax from one with a progressive structure into a flat tax.

So now it’s time for the coup de grace: An amendment enshrining those tax breaks for the state’s wealthiest residents into the state constitution.

In November, North Carolina residents will be voting on a ballot initiative that would amend the state’s constitution to cap its income tax at 7 percent, down from a current cap of 10 percent. Considering that North Carolina’s income tax currently tops out at 5.499 percent, and is scheduled to fall further to 5.25 percent next year, that may not seem like a big deal. But it is.

First, the background. The change to a flat tax helped those at the top of the income scale, who saw their rates drop the most. Along with a host of other tax cutting measures, including a corporate income tax reduction, it cost the state a big chunk of money.

“Since 2012, when Republicans took full control of the legislature and governorship for the first time in modern history, they’ve been on a tax cutting rampage,” said Meg Wiehe, a North Carolina native and deputy director of the Institute on Taxation and Economic Policy. “The state will be about $3.6 billion shorter in revenue than it would have been otherwise, which is a pretty significant difference in a state with a general fund of just around $21 billion.”

By pushing a cap on the income tax into the Constitution, lawmakers hope to lock those reductions in, making future legislators go through the same long amendment process in order to raise taxes or add progressivity back into the code. (Amendments to the North Carolina constitution are placed on the ballot via a three-fifths vote of both houses in the state legislature and require approval by voters, whereas legislation can be passed by a simple majority of lawmakers.)

As recently as 2013, the top income tax rate in North Carolina was 7.75 percent, so it’s not out of the question that lawmakers would want to implement an increase from today’s levels. Even setting the cap at 7 percent was a compromise of sorts among the Tar Heel State’s Republicans: Many wanted to cap the income tax at its current level, or even below that, forcing a constitutionally-mandated tax reduction.

A cap poses several problems, in addition to the simple unfairness of leaving such a low tax rate on the wealthy in a state where more than 100 percent of the income gains since 2009 have gone to the richest 1 percent of the population (meaning those at the other end of the income spectrum actually lost ground). For starters, it could undermine important state investments, as Alexandra Forter Sirota, director at the North Carolina Justice Center’s Budget and Tax Center, explained.

“To maintain current service levels for our population, we won’t have enough revenue under our tax code in 2019,” she said. “So they’ll have to either cut services or raise revenue or some combination of both.” And those cuts tend to fall disproportionately on low-income communities and people of color, she said, as will potential revenue raisers if the state has to resort to fees or sales taxes in lieu of being able to raise income taxes.

Since 2012, when Republicans took full control of the legislature and governorship for the first time in modern history, they’ve been on a tax cutting rampage.
– Meg Wiehe

Already, that dynamic has been evident in the state. As the Center on Budget and Policy Priorities noted recently, spending on public colleges in North Carolina is still nearly 20 percent below where it was before the 2008 recession. Previous rounds of tax cutting have made it so that North Carolina can’t raise K-12 education funding, which is already among the lowest in the nation.

This problem will be magnified when another economic downturn inevitably comes. “There have been key times even in recent history when the state, in an emergency situation, has relied on the wealthiest taxpayers to pay more to help ensure that critical services don’t have to be deeply cut,” explained Wiehe. “Future lawmakers who maybe would prefer to use the income tax as their tool wouldn’t have that available to them.”

Case in point, the state enacted a temporary top tax rate of 8.25 percent on the state’s richest residents in response to the Great Recession – helping to preserve funding for public schools and public health programs like the Children’s Health Insurance Program – a  move which would be rendered much more difficult if lawmakers needed to spend time getting voters to approve a new amendment.

North Carolina has been a political battleground in recent years, the quintessential “purple” state that is home to the weekly Moral Mondays march, but with a state legislature controlled by conservatives. In addition to the tax cap, voters there will be assessing amendments that would restrict voting rights and remove some of the (currently Democratic) governor’s powers. Locking in tax cuts for the wealthy fits right in.

According to a recent Elon University poll, 56 percent of North Carolinians support the tax cap amendment as written, with 15 percent opposing it. However, after being provided an explanation that includes the amendment’s possible adverse effects, the gap falls to 45-27. That has Sirota optimistic that voters grasp what’s at stake.

“I think that North Carolinians are incredibly smart about this issue right now,” said Sirota. “They understand that since 2013 the vast majority have not seen a big difference in their taxes, but they have seen their communities struggle with having to figure out how to meet needs.”



Ben Carson Wants HUD to Stop Fighting Housing Segregation

Today, a child born to a low-income family and raised in the Tremé neighborhood of New Orleans will have beaten the odds if they live past age 67. They can also expect to make just $20,000 a year by the time they reach their thirties.

Just a 20-minute drive away, in the Uptown/Carrollton neighborhoods near Tulane and Loyola Universities, that same child could expect to live 20 years longer and take home roughly $53,000 more in annual salary.

These communities are just six miles apart, yet designed and resourced in such a way that there’s a world of difference between the lives their residents can hope to have. Being raised in different neighborhoods can determine everything from the jobs you have access to, the schools your kids attend, and the groceries you can buy.

In 2015, the Obama administration created the Affirmatively Furthering Fair Housing rule to fix this disparity. But Department of Housing and Urban Development Secretary Ben Carson has moved to indefinitely delay implementation and is proposing drastic changes that analysts predict will all but gut its efficacy.

Why this matters.

While the idea of furthering fair housing appears in the 1968 Fair Housing Act, it wasn’t meaningfully enforced over the last half century. So under the 2015 rule, communities that receive funding from the Department of Housing and Urban Development are required to develop action plans to not only remedy their existing racial and ethnic segregation and neighborhoods of concentrated poverty, but to also ensure that every U.S. community is equipped with the resources and opportunities to meet their residents’ housing needs.

As nationwide data released this month grimly reinforced, the neighborhood or ZIP code you grow up in, more than ever, has a dramatic impact on whether you earn more or less than your parents did. Researchers found this impact is particularly acute for black boys who, regardless of their families’ income, face the worst outlook for escaping poverty, building wealth, and doing better than their parents.

This is merely one aspect of a racial wealth gap that has persisted since the formal founding of this nation. Today, a typical black family with an income of $50,000 lives in a poorer neighborhood than a white family earning $20,000. Government-sponsored public policies intentionally crafted to hold back people of color and cut off their communities from wealth-building opportunities, through practices like segregation and redlining, continue to drive these disparities.

What the rule was starting to do, before HUD attacked it.

The 2015 rule was meant to begin addressing this man-made problem. And early results were promising. As Massachusetts Institute of Technology Professor of Law and Urban Planning, Justin Steil, pointed out, several municipalities were beginning to create meaningful, measurable goals as part of the new rule.

For example, New Orleans committed to developing 400 units of affordable housing in Tremé, a neighborhood near the French Quarter that is quickly gentrifying, and Seattle proposed expanding its housing affordability requirements into new areas of the city.

Other regions’ goals included increasing access to existing opportunities, such as Chester County, Pennsylvania, which committed to building 200 affordable housing units in neighborhoods already well-resourced with good jobs, quality education programs and health care services, as well as access to other essential amenities such as grocery stores, parks, and community centers. Paramount, California proposed changing its zoning codes to increase housing accessibility for people with disabilities. Wilmington, North Carolina’s goals prioritized workforce development via job training and placement programs tailored to its local economy.

America continues to grapple with the ongoing byproducts of state-sanctioned separate and unequal neighborhoods.

Dozens of communities had submitted plans under the rule. And yet HUD suddenly and without warning removed a key assessment tool from its website in May that communities were using to shape their goals.

Carson cites a “high failure rate” of analyses submitted by communities among his reasons for delaying the rule, but that justification isn’t valid. Of the 49 analyses that communities submitted to HUD between 2015 and 2018, 65 percent were accepted immediately. The remaining 35 percent were returned to communities with detailed guidance about how to fix the problems; almost all have since been corrected, re-submitted, and accepted by HUD.

This degree of success is remarkable considering the rule was being newly implemented. And, contrary to Carson’s reasoning, the fact that a few of the initial submissions were sent back to communities for corrections signals that the new rule’s standards are exacting and meaningful, and should not be interpreted as evidence of failure.

Indefinitely suspending the rule and eliminating the federal assessment tools that have been helping local communities fight segregation as well as identify, increase and ensure fair housing opportunities for all means HUD has brought this long-overdue and much-needed progress to a halt.

What now?

America continues to grapple with the ongoing byproducts of state-sanctioned separate and unequal neighborhoods that set their residents on very disparate and divergent achievement paths. The rule that the Trump and Carson HUD aim to derail and ultimately demolish is designed to tear down those longstanding structural barriers and shrink the ever-widening gap between the haves and have nots.

It is important to keep in mind that the rule is not only focused on stopping segregation and discrimination but also on actively investing in neighborhoods where people currently live so that those communities are well resourced. The bottom line is that people should not be forced to move away from their community and existing social networks in order to access the basic supports necessary to have a good life.

The department is required to accept public comments until Oct. 15 about these proposed changes. Any member of the public — individuals, organizations, or community groups — can submit comments and let their voices be heard on the importance and fate of this equity tool.

Editor’s note: The public can submit comments on the proposed rule in the Federal Register. For additional instructions, see the guide produced by the Center for Effective Government.



Read a Book: Fall 2018 Releases for When the News Is Too Much

After I graduated from college, I stopped reading books. I still read constantly — the Internet is great at inundating us with writing — but it was always piecemeal. I’d take in a few hundred words from breaking news reports or beloved blogs, or a few thousand from think pieces. For a while, that felt like it worked.

Then the Trump administration happened. For the past two years, reading the news has felt like inviting the worst parts of humanity to practice punching me in the solar plexus. What’s worse, on days that felt comparatively slow — when we weren’t on the brink of war or gutting our health care or bulldozing our immigration law — I got anxious. I was starting to depend on the Trump administration to provide me with something to which I could react.

That mode of thinking is exhausting. Even worse, it’s limiting. Instead of focusing on what society has the potential to be, I was focused only on the depths to which I hoped we wouldn’t sink.

It turns out that books can be a helpful remedy to this problem. They provide room for writers to explore, to indulge nuance, to push on boundaries, and provide readers the time to reflect on what’s been written. And, unlike Twitter, they don’t shine a bright electronic light in my eyes when I’m trying to go to bed.

This the first in a regular series rounding up books the TalkPoverty staff loves. We’re kicking it off with new releases that are all relevant to today’s most pressing issues, but excel in delving into the shades of gray that are often missing from breaking news coverage and Twitter threads.



The Golden State by Lydia Kiesling

In some ways, The Golden State is a classic road novel: It follows its main character, Daphne, as she flees San Francisco and sets out for the high desert of California. She’s looking, like so many travelers before her, for freedom, adventure, and a break from bureaucracy. The catch is that unencumbered freedom isn’t a real option: Every point in Daphne’s journey is marked by her caretaking of her 16-month-old daughter, Honey.

Daphne’s relationship with her daughter, and with motherhood, has a fullness and honesty I’ve only seen once before (in Maggie Nelson’s The Argonauts). She loves her daughter desperately, but her exhaustion and frustration with Honey’s needs and tantrums slowly build into something like dread and rage. The result is a novel that’s both beautiful and challenging, probing ideas around domesticity and freedom of movement that, in worse books, are treated as if they are opposites.

For you if: You’re interested in experimental stream-of-consciousness works, or themes around immigration, parenting, and domesticity.


The Caregiver by Samuel Park

Park’s last novel, completed shortly before his death, is another, completely different, mother-daughter tale. It alternates between 1980s Brazil and 1990s Los Angeles while the main character, Mara, cares for a woman dying of stomach cancer who dredges up memories of Mara’s complicated relationship with her mother. It’s a story about the way Mara survived in both countries — as an undocumented caretaker in the United States and as a poor child in Brazil — that’s engaging, if slightly soapy.

The book alternates between being thrilling and introspective, vacillations that are almost certainly due to Park imbuing the women for whom Mara was caring with the same illness that was killing him.

For you if: You want to a novel with compelling characters that’s heavy on plot, or themes around being undocumented or providing health care.



Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World by Annie Lowrey

Universal Basic Incomes are officially mainstream, but advocates of the policy — from Silicon Valley tech bros to libertarians to Black Lives Matter activists — are strange bedfellows with very different explanations for why we should give everyone a monthly cash sum.

Lowrey’s book walks through each group’s justification for backing the policy. She’s thorough and respectful of subjects throughout, but clear about whose arguments she is — and isn’t — buying.

For you if: You want an accessible long read on a newly-trendy economic policy.


What You Are Getting Wrong About Appalachia by Elizabeth Catte

This pocket-sized rebuttal to the oft-cited Hillbilly Elegy re-situates Appalachia as part of the United States, instead of the far-thrown Trump Country that has been the subject of media fascination.

Catte, a historian from East Tennessee, walks readers through the region’s history with industry and race, and current residents’ organizing efforts around land and labor. While the book doesn’t transform the region into a liberal paragon, Catte does portray it with the kind of nuance you would expect from a real place: one with serious problems, a complicated history, and a lot of very different people trying to figure out what to do next.

For you if: You’re still talking about Linda Tirado’s drunk reading of Hillbilly Elegy.



Heartland: A Memoir of Working Hard and Being Broke in the Richest Country on Earth by Sarah Smarsh

Sarah Smarsh has been treated as a sort of spokeswoman for the working class since her viral essay, “Poor Teeth,”  captured her family’s experience with a blend of honesty, compassion, and humor that only comes with real experience. Her memoir, Heartland, is written from the very same place as the essay that made her famous: One that has the audacity to love and respect a poor family.

The book tells stories that are equal parts joyful and horrifying, and situates her family’s life in the policies that made it impossible for them to afford health insurance or compete with agribusiness. It’s not quite perfect — the framing device featuring a non-existent daughter doesn’t quite land for me — but it’s an extremely powerful and pointed meditation on class in America.

For you if: You’re a sucker for a beautiful memoir.


Eloquent Rage: A Black Feminist Discovers Her Superpower by Brittney Cooper

Before Rebecca Traister published her much-anticipated Good and Mad, Brittney Cooper had written an entire treatise on the power in black women’s anger, and the contempt the country has for it.

Eloquent Rage focuses on the web of sexism, racism, and class, grounding Cooper’s understanding of all three in her own coming of age. And, most importantly, it takes on the current feminist movement — one often grounded in whiteness — and forces readers to recognize how that “fucks shit up for everybody.”

For you if: You prefer your life lessons delivered by someone else’s grandma.


First Person

Trump Is Rewriting Our Immigration Law To Come After Families Like Mine

Late last month, the Trump administration released a draft rule that would change the way immigration works in the United States. Under the proposal, immigration officials will try to predict whether a person applying for a green card might receive government assistance, like Medicaid or the Supplemental Nutrition Assistant Program, at any point during their future life in the United States. If it seems possible — because the applicant isn’t wealthy or has a disability — then the green card will be denied, even if the applicant has met all of the other criteria.

There have been rumors that this might happen for months. The first time I heard about it, I was sitting in my summer internship with the city of Dallas. One of my supervisors asked me if I was familiar with possible changes to the “public charge rule,” which requires immigrants to prove that they will not use government benefits before they are granted permanent status. When I shook my head no, she gave me a handout that explained who would be affected.

Individuals with visas or legal permanent residents. Check.
Individuals who have used any federal assistance programs. Check.

I held my breath when I read it, my eyes darting from line to line while I felt the walls close in. This was about my family. They were looking for me.

My parents moved to Dallas from Chihuahua, Mexico in the early 90s. My brothers and I were all born in the United States. We used Medicaid and the Children’s Health Insurance Program to get our standard vaccines as kids, and my parents got their health insurance through the Affordable Care Act. We followed all the rules and did exactly what we were supposed to do.

I always follow the rules. I just started my senior year of high school, and I have my days completely packed with extracurricular activities. That means debate on Mondays and Wednesdays, LULAC meetings Wednesday mornings, mock trial on Tuesdays, We Fight Fear meetings after school, volunteering Saturdays and Sundays, and SAT prep in between. I don’t climb back into bed until 12 a.m., after finishing homework, sending emails, and setting up meetings.

I’m not just doing these things because I like them. I’ve never felt I have the option to turn down opportunities, because if I push myself hard enough to get a scholarship then all the late nights will be worth it.

I’m in the process of setting up my Common Application profile for college. I always knew that my parents wouldn’t be able to afford my tuition, and that I would have to cobble together grants and scholarships to pay my way. So it’s up to me to prove to colleges that they should pay for me to attend.

But when I heard about the new immigration rule this summer, I had to second-guess the one thing I was most certain about: going to college. If I applied for Pell Grants to cover tuition, was that going to count against my parents? If their income dipped below the threshold in this new immigration rule, would I need to stay home and get a job to ensure they weren’t targeted? If I followed through on my dreams, and on all the work I’ve put in, would I be betraying my family?

If I applied for Pell Grants to cover tuition, was that going to count against my parents?

I’m not the only one who is scared. Once my mom found out about the rule, she told me she wasn’t comfortable continuing my little brother’s Medicaid coverage. He’s only 3 years old, and he has so much growing left to do. The government knew it would create this risk when it announced the new rule: Documents from the Department of Homeland Security predict that people will receive less health care, and that disease rates will increase for U.S. citizens who have not been vaccinated yet.

Those documents are talking about my little brother.

When the rule finally came out last week, and I got to look at real words on paper instead of wading through a swirl of rumors, I got a tiny taste of relief. This version of the rule won’t apply to people who already have green cards, and my mom just renewed hers. For now, I can daydream about college, and my parents can sign my brother up for health insurance.

Just a short while ago, we wouldn’t have made the cut. There are hundreds of thousands of people who still won’t. Those people, and those families, will see the opportunities they’ve worked so hard for finally within their children’s reach, only to be forced to wave them away, in case it costs them everything. They’ll do exactly what we did: pass on health insurance and decline the few extra bucks to make sure we didn’t go to bed hungry. What else are we supposed to do when the government forces us to choose between our families and our future?

Even though I’m safe for now, I don’t feel like I’ve won. This isn’t a game. Not to me, not to my brothers or my parents.

But as I sit here and contemplate which college campus I’ll be walking onto this time next fall, if I get to go to one at all, that’s what it feels like. It feels like they’re using children as chess pieces in a twisted political contest to force immigrants into the shadows of a nation we helped build.