A four-part exploration of the most commonplace predatory lending scams destroying the futures of poor and minority Americans with impunity.

 

“A pound of that same merchant’s flesh is thine. The court awards it, and the law doth allow it.”

— William Shakespeare, The Merchant of Venice

 

Part 1: Predatory Lending – “The Law Doth Allow It”

 

In Shakespeare’s play, The Merchant of Venice, one of English literature’s most notoriously ruthless predatory lenders faces down a client in court who has defaulted on a loan with such usurious terms that it was virtually impossible to pay.

This was the loan’s purposeful design. This is, after all, what makes “predatory” lending, predatory.

The prey, then, is the person who cannot repay the loan, who pays into it over and over again and can never make any headway into the original amount. Who eventually will default and then the lender can prey on him in even more cruel and despicable ways.

In the play, rather than seeking repayment of the loan in full (the borrower offers to repay three times the original amount), the lender chooses to demand a pound of flesh, which is the ultimate payoff and punishment outlined in the now-forfeited loan agreement between the two men. The judge agrees to the lender’s legal right to a pound of the borrower’s flesh, saying, “the law doth allow it.”

So outrageous were the brutally inhuman loan terms of this famous Shakespeare play, the phrase “a pound of flesh” has since become a commonplace figure of speech for English speakers the world over. Especially in reference to outrageous debt stemming from illegal or unethical lending practices.

As shocking as this sinister demand—a chunk of a living person’s body as payment—was at the time The Merchant of Venice was written over 400 years ago, ironically enough, many of today’s victims of predatory lending might even prefer to pay off their financial captors with a pound of their own flesh, rather than suffer the life-destroying financial ruin that these types of loans actually subject them to. The aftermath of falling victim to predatory lending can cause irreparable harm to a person’s credit and livelihood that will potentially affect them throughout the rest of their lives. It can even go on to affect the lives of their children and future generations. It is a spiral that—once a person has been sucked into it—is nearly impossible to get out of in any realistic way.

But it doesn’t have to be this way. There are, in theory, laws and agencies in place to protect borrowers from drowning in debt for a lifetime. However, because of the ruthless and convoluted ways predatory lenders devise loans to hoodwink consumers, and because of the fact that these lenders outmaneuver the laws as fast as they are passed, the trend of Americans falling into a disastrous debt trap moves upward every single day.

Why? Because the law doth allow it.

The law can’t—or won’t—keep up with the ever-changing schemes and tricks of predatory lenders.

The debt spiral, as it’s often called, isn’t just a matter of one bad loan. The fallout from the financial quicksand it can create is not only insurmountable debt, but also devastation to a person’s credit score, and sometimes even bankruptcy. And this fallout doesn’t even account for the physical and emotional toll of the bullying, harassment, and legal actions that these lenders and debt collectors are widely known to employ. Because, as of now, the law doth allow it.

Predatory lending, to be sure, has been around in some form or another since the advent of lending itself. However, what has become clear over the last roughly 40 years is that when it comes to how we devise predatory loans in America—as with so many other aspects of culture—we do it “bigger and better.” Our predatory lenders are more clever and fierce. Soulless and backed by unimaginable amounts of Wall Street money. In the “David versus Goliath” fight over fair and equitable lending practices, shockingly, it is the U.S. Government who is the David-like underdog trying to take down the multi-billion dollar monster that is the predatory lending industry Goliath.

In the era of the Great Recession, a bill known as Dodd-Frank was passed, which was intended “to protect consumers from abusive financial service practices.” This sprawling 848-page bill was the government’s attempt to quickly and meaningfully address and kneecap the unethical banking practices that had largely caused the global market crash and the ensuing recession. It was called the Great Recession because the worldwide financial devastation—not to mention the tsunami of economic despair here in the U.S.—teetered dangerously close to another depression. The United States’ housing and the economy had collapsed, effecting minority and poor Americans disproportionately—as usual.

From this 2010 law—Dodd-Frank—a new government agency was born, called the Consumer Financial Protection Bureau. This agency was tasked with identifying and finding “bad actors” in the consumer finance industry who were charging sky-high interest rates, abusing consumers by harassing them and taking them to court, and finding new and ingenious ways to sidestep any local, state, or federal law designed to stop their destruction.

It wasn’t perfect, this CFPB, but it was something. More than we consumers had even truly expected. For the first time in decades, it seemed as though the federal government was finally seeing us. That we might actually stand a chance in the never-ending dance of doom between poor and minority people and the unconscionable lenders who come after what little money we have in every fathomable way.

On the heels of this potentially good news, just as the economy seemed to be clawing its way back to something resembling good health, the calamity of Covid-19 kicked the door wide open and shined a spotlight on still pervasive (and growing) economic and wealth inequality, housing inequality, and systemic racism that has long been the underlying cancer of American society. At the root of so much of this: predatory lending.

There are many forms of predatory lending, from title loans to pre-paid credit/debit cards, but the most commonplace—the ones that appear with the greatest regularity in poor and minority American communities—are: payday loans, sub-prime auto sales, and contract home sales. The literal signs are everywhere in our most underserved communities. Drive through just about any poor town or neighborhood in America—rural or urban—and you will undoubtedly see the tell-tale check cashing, used car, and “homes with no money down” signs dotting the landscape.

You’ll see the guy twirling a sign by the roadside to draw your eye to the CheckAdvance or Cash-N-Go or AdvanceAmerica storefront. Right next to the Dollar General. Just down from the liquor store. Across the street from the pawnshop. You’ll see the lot of used cars with the colorful balloons bobbing off the hoods and antennas of these “pre-owned” machines waiting just for you. They seem so cheerful. So happy. Too good to be true.

Sadly, the design of these three most common types of predatory loans is such that they purposely prey on the most financially vulnerable, and lenders hope that their customers cannot repay the loan within the original timeline agreed upon. No, they don’t hope. They need their customers to be unable to pay. This is their business model.

While this might seem counterintuitive at first, it will soon become abundantly clear why this highly lucrative industry has exploded all over our country, profiting off the inability of their customers to pay off their loans in a timely fashion. Their ideal customer is one who cannot repay the loan. They are the prey.

If a person can’t afford the loan, she is the one they want to give it to. For they know, if she is so desperate that she needs $500 now, she will not have $500 in a week or two when the loan comes due. And then, the real tricks and stunts and bullying can begin.

In a recent interview, I spoke with Marc Dann, former Ohio Attorney General and current practicing attorney for Advocate Attorneys, an ally of AHP 75. When I asked him about the firsthand experience he had with the explosion in predatory lending before the Great Recession and in its aftermath, he had this to say: “In 2007, as Ohio Attorney General, I conducted public hearings around the state and heard devastating stories of exploitation and financial ruin. We proposed and passed legislation in 2008 over small or payday loans in Ohio. In response, the lenders started to offer predatory loans under other sections of the Ohio Revised Code. We fought them to the Supreme Court and lost.”

And so it goes.

The law doth allow it.

 

Caught in a downward spiral of debt? Visit AHP75.com to learn about our Debt Remediation Services.


Aaron Morales is the Social Justice Writer for AHP 75, based out of Chicago, IL.

amorales@ahp75.com