Drive down Cherry Road in Rock Hill and, within a two-mile stretch, amid the small businesses and fast food joints, you'll see 20 or more payday loan and auto-title loan companies. You'll find the same companies' storefronts in Charlotte, too, but ever since North Carolina limited annual percentage rates to 36 percent, these businesses began focusing on other ways to exploit the poor, such as check cashing, sending money by wire, money orders and such. Either way, others' hard times are being turned into good-time profits for one of America's most disreputable "industries." What may surprise you is where the major payday lenders get their funding. Hint: Face Uptown and look for tall buildings.
Twenty years ago, payday loan offices were a rarity. Today, they constitute a $50-billion-a-year-plus industry with more locations nationwide than McDonald's and Burger King combined. And that doesn't even include the vast, growing numbers of online payday loan companies, whose operations usually slip under the radar of the various states' regulations. The payday loan industry has earned its lousy reputation by making a killing from the exploitation of others' financial hardship, such as charging annual percentage rates of 400 percent or more. It doesn't help the industry's image, either, that it largely sets up shop among the poor and the young, especially near military bases and in low-income areas. Many people think of them as much seedier, and certainly more tasteless, than the more refined aura of the big banks. Is that what you think, too? Well, think again.
A study released last week by National People's Action, an economic justice think tank, makes it very clear that the payday loan industry could not survive without help from the ostensibly more respectable "regular" banking industry. The study reveals that in today's environment of high unemployment, foreclosures, and a critical lack of available credit for consumers and small businesses, some of America's biggest banks, including Wells Fargo, Bank of America and Wachovia, are a pillar of what the report calls "the bottom feeders in the loan industry: payday lenders." The big boys are offering more than $1.5 billion to the major, publicly traded payday lenders, while it's estimated that they dole out $2.5-$3 billion to the industry as a whole.
Wells Fargo is the biggest friend of payday lenders, according to the report, financing about a third of the industry. The NPA report also singles out Bank of America and Wells Fargo for having played a major role in the success of the biggest of all payday lenders, Advance America, which runs twice as many storefronts as its closest competitor. It was Advance America's exploitive policies, in fact, that led to North Carolina's decision to set limits on such businesses' APR. Even so, Bank of America and Wells Fargo/Wachovia continue to finance the company today. And why not? They're old buddies — those banks provided Advance America nearly $50 million in credit before the company opened a single storefront.
Bank of America responded to the NPA report by stating, "We treat payday lenders as a discouraged industry," which would be more believable if BofA wasn't currently working with Goldman Sachs to prepare an IPO for NetSpend. What's NetSpend? It's a prepaid debit card company that partners with leading payday lenders and is owned by JLL Partners, which also owns ACE Cash Express, another payday loan outfit. Prepaid debit card companies charge a variety of fees to guarantee themselves a healthy profit — even an "Account Maintenance fee" in case a customer has the gall to not use the card for 90 days. That may be a step up from the raw greed of payday lending, but as far as Bank of America's image is concerned, it's hardly the greater sensitivity to public opinion you'd expect from a company that received $45 billion in taxpayer bailout funds.
Those same taxpayers, as well as American small businesses, are largely being booted out when they come knocking at big banks' doors, seeking loans. That lack of credit is prolonging the country's misery and keeping the economy near death, but BofA and Wells Fargo are happy to hand over money to the businesses that are already picking at the corpse.
John Grooms is an award-winning writer and editor, teacher, public speaker, event organizer, cultural critic, music history buff and incurable smartass. He writes the Boomer With Attitude column, news features and book reviews, and contributes daily content to the CL news blog (www.theclogblog.com).