The Daily Sandwich

"We have to learn the lesson that intellectual honesty is fundamental for everything we cherish." -Sir Karl Popper

Location: Boston, Massachusetts, United States


Wednesday, August 01, 2007

Everybody doesn't like something, but nobody doesn't like... usury.

Still, the GOP has actually accomplished quite a bit over the last few decades. Most astonishingly, perhaps, is their success in replacing Christianity with social Darwinism. Nice irony, not so great in practice.

From "Usury Law, Payday Loans, and Statutory Slight of Hand: An Empirical Analysis of American Credit Pricing Limits," by Christopher L. Peterson, a law professor at the University of Florida:

In virtually every measurable way usury law has become much more lax since 1965. In 1965 every state in the union had a usury limit on consumer loans. Today nine states have completely deregulated interest rates within their borders. In 1965 banks were bound to comply with all state usury laws. Today banks are free to charge whatever interest rate they choose within the loose and changing tolerances chosen by banking regulators for their safety and soundness guidelines. In 1965 no state had law either explicitly or implicitly authorizing prices with an annual percentage rate of over 300 percent. Today, at least 36 states have law allowing lenders to charge over 300 percent. In 1965 usury laws were drafted with sufficient rigidity that 45 states held actual allowed annual percentage rates to 60 percent or under. In 2007 the number of states accomplishing this has fallen to only seven.

Other fun facts:

*"The best available nationwide estimate suggests that the average payday loan borrower repays $793.00 for a $325.00 loan."
*"Between 2000 and 2004 alone, the number of payday lender locations more than doubled from 10,000 to 22,000." . . .

Peterson's conclusion:

"Every state that has legalized triple digit APR consumer loans to the working poor uses a small, misleading number in their legal text to do so. This suggests that political leaders understand what many traditional neo-liberal economists apparently do not. In the real world how a value is described can be much more important than the value itself. Many state legislatures use small, innocuous numbers in usury law because they are attempting to minimize the public and media outcry over their decision to legalize triple digit interest rate loans."

Just for fun, imagine the outcry if a big New York bank tried to charge triple digit interest rates on a loan to a private equity player like Blackstone or KKR. After the smoke cleared from the wreckage on Wall Street, someone might do something crazy, like pass a law making the unconscionable illegal.

As a liberal, of course, I'm supposed to be the godless destroyer of civilization. For that reason, I'll leave you with a favorite Charles Darwin quote of mine:

Inasmuch as ye have done it to the least of those my brethren, so ye have done it unto me."