I have posted content on my site warning people away from payday loans. They are predatory in nature, have pushed people into severe financial distress, and are not the solution to your financial problems!
It is for this reason that I was pleased to see a story in the Philadelphia Inquirer that the godfather of these loans, Charles Hallinan, is being tried on federal racketeering charges, along with conspiracy, money laundering, and fraud. Prosecutors are seeking more than $688 million in restitution.
How Bad Is It?
This, in my opinion, was a long time coming! As the paper reports:
His myriad businesses — most based in Bala Cynwyd with names like “Tele-Ca$h,” “Instant Cash USA,” and “Your Fast Payday” — made more than $688 million between 2008 and 2013 while charging customers interest rates approaching 800 percent.
His attorney, Wheeler K. Neff, is also charged in the case. Prosecutors state that Neff urged clients to seek out opportunities in “usury friendly” states! In 2003, Hallinan began contracting with Indian tribes, which could claim sovereign immunity, thus protecting them from enforcement and lawsuits.
One example is the Western Sky company. He paid tribes in Oklahoma, California, and Canada as much as $20,000 a month to use their names to issue loans across state lines, in addition to housing the computer servers.
The Devastating Effect on Borrowers
These loans have been devastating to borrowers! The Inquirer later reported on testimony from the trial by high school science teacher Dawn Schmitt from North Dakota, who took out a $200 payday loan to pay some bills that fell due before her next paycheck. The annual interest rate was over 350%!
She fully intended to repay her loan in full as soon as she got her next paycheck. But the money wasn’t there, and over time the interest began to add up. She ended up taking out more payday loans to cover the payments for the first one, borrowing from one to pay another. Her monthly paycheck was eaten up with the fees she was paying.
Let's Hope That Justice is Served
The trial is ongoing, and I hope that some good comes out of it. These companies prey on the most financially vulnerable, finding more and more nefarious ways to skirt existing state usury laws in order to charge unimaginably high interest. Their victims need justice; I hope they get it.
What do you think of all of this? Have you, or someone you know, been victimized by these types of loans? Please let me know in the comments!