Jewish World Review April 28, 2005 / 19 Nisan 5765

Paul Greenberg

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Consumer Reports

The shame on the South | It says it right there on our license plates:

Arkansas — The Natural State

And in the Natural State, poor suckers make natural prey. Like too many other Southern states, the Natural State is a loan shark's paradise.

You may have heard of payday lenders. You can find them in almost any poor neighborhood. These financial predators will gladly advance you money on your paycheck at an unconscionable rate of interest. Sometimes it's as high as 300 percent a year, sometimes higher.

Surprisingly, the small print says nothing about a pound of flesh, but the effect can be almost as devastating.

Once a sucker is hooked by these payday lenders, it can become a way of life, like any other addiction.

Tennessee Ernie Ford, who owed his soul to the company store, had no idea how rapacious the mod, souped-up, chain-store equivalent could be. In state after state. There's a reason so many payday lenders are found in poor neighborhoods or just outside military bases, where some of the more responsible commanders have marked them Off Limits to their personnel.

And at tax time, it's not just payday lenders who prey on the poor and desperate — and ignorant. Income-tax preparers have started doing the same thing.

Naturally the practice goes by an appealing name. H&R Block used to call it a Rapid Refund loan. But it had to drop that euphemism thanks to a federal court order. The same bad deal is now known as a Refund Anticipation Loan.

G-d bless the courts of the United States; they may be the only branch of government with a conscience on this subject.

Tax Refund loans can come with interest rates above 300 percent a year, too, which puts these tax preparers in the same predatory class as payday lenders. For collateral, they'll gladly accept your anticipated refund, especially if you're so poor you get an Earned Income Tax Credit instead of having to pay any income tax.

A news story on the front page of the Arkansas Democrat-Gazette at tax time indicated just how widespread this plague has become. Little ol' Little Rock ranks seventh in the nation when it comes to such loans, trailing only Memphis; Birmingham, Norfolk, Greenville, S.C., Atlanta, and Newport News, Va.

What do all these cities have in common, besides abounding in poor suckers desperate for cash? They're in the South.

Why the South? There's no clear answer. To quote the news article: "Some researchers are stumped as to why Southerners tend to use tax refund loans more than other taxpayers in the country."

It's a continuing wonder what will stump economic researchers. Maybe the problem is their being sophisticated about economics but not about sociological reality here south of Mason-Dixon's. The explanation is cultural: Payday lending and refund loans are the natural successors to the worst of the sharecropper system in a regional culture that, before tenant farming, was rooted in plain slavery.

Here's my theory: Wherever schools lag, especially in economics education, and the poor and ignorant are thick on the ground, you'll find folks who are only too happy to take advantage of the least among us — at 300-plus percent interest. And politicians who are only too willing to go along.

Unlike the boll weevil, this scourge isn't limited to the South. Last time I checked, 33 states and the District of Columbia had passed laws that exempt payday lenders from their usury laws. Texas had the lowest cap on such interest payments — 309 percent! — while eight states had no cap at all.

States that don't regulate the terms of loans at all, like Wisconsin and New Mexico, make it even easier to take advantage of the poor and vulnerable.

In the just concluded session of the Arkansas Legislature, a few lawmakers tried to fight this rip-off by limiting interest on loans to 17 percent. Lenders who charged more would have been assessed a heavy fine, and essentially put out of business. Their bills disappeared without a trace.

The predatory lenders seem to have as powerful a hold on politicians as they do on desperate borrowers. One of the few memorable things Mark Pryor did as Arkansas' attorney general before he went on to become a pious U.S. Senator talking about the example Christians ought to set was to go easy on loan sharks, having collected his share of campaign contributions from them. Predatory lending will continue to flourish so long as it has political support, and in too many states it does.

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JWR contributor Paul Greenberg, editorial page editor of the Arkansas Democrat-Gazette, has won the Pulitzer Prize for editorial writing. Send your comments by clicking here.

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