What happened to those TV commercials for payday loans? : Planet Money: NPR
On TV this summer you might have seen this ad with a smiling young lady offering help with all those awkward bills.
“Western Sky’s problem solver. Get up to $ 10,000 unsecured. Enough to pay off your payday advances, once and for all,” she says.
There’s a beating drum in the ad, probably to make a point – Western Sky says it’s 100% Native American-owned and therefore exempt from state laws prohibiting high-cost loans.
But Benjamin Lawsky, superintendent of financial services for New York State, does not accept this argument. “These are companies looking to prey on people who I believe are some of the most vulnerable in our society,” he said.
New York is one of the 15 states that ban high interest loans. This summer, Lawksy sent cease and desist letters to Western Sky and 34 other online lenders. He called on banks to block businesses from accessing New Yorkers’ bank accounts, and the state sued Western Sky for charging interest rates over 355%. The impact was immediate.
“It’s a very nice, tall, beautiful building, and right now it’s empty,” Western Sky supervisor Tawny Lawrence said as he stood in the company’s deserted call center. on the Cheyenne River Indian Reservation in Eagle Butte, SD.
Western Sky announced in September that it was laying off nearly 100 workers in what it called a “baseless overrun” by government regulators. Lawrence says jobs are scarce here, so people have taken the news harshly.
“We sat on the floor and then I told them. And Indians don’t cry loud, you know. So there were lots and lots of silent tears,” he said.
This is one of the ironies of the payday loan struggle. Some of those affected by the crackdown are the same low-wage worker regulators claim to fall prey to lenders. And it’s not just Western Sky that has stopped lending. Other businesses have also closed.
“It’s just in our minds a number of… bureaucrats who decided they didn’t like the industry and were going to try to bankrupt us,” said Peter Barden, spokesperson. word of the Online Lenders Alliance.
Online loans, which had been growing rapidly, could decline by about 20%, or $ 4 billion, this year, according to an analysis.
Barden says a lot of people get payday loans because they need the money and can’t get it anywhere else. “We know what the demand is there because we can see it online. I mean people go to their search engines and google ‘short term loan’, ‘I need a loan’ , “where can I get a loan” “Barden said.
Consumer advocates say this is the problem. These borrowers are desperate, and what looks like a good deal can easily turn into a cycle of debt. The Pew Charitable Trusts have discovered that a typical borrower ends up paying over $ 500 in interest on a $ 375 loan. Nick Bourke, who works with Pew, says people often have to borrow over and over again, just to keep up.
“The lender has this unique legal authority to access the borrower’s checking account and take payment before the borrower can choose to pay rent, utilities or other expenses,” he said. .
In fact, it’s called a payday loan because you are supposed to pay it off as soon as you get your paycheck. Pew wants regulators to do something about it – maybe give people more time to pay off their debt. Even lenders say they welcome some federal rules to replace all different state laws. They would like the conditions to be clear on what they are and are not allowed to do.