Shilling the Poor . . . and Everyone Else

A recent study by University of Chicago economists Bertrand and Morse looked at the opportunity costs of payday lending and whether more information would change the behavior of borrowers (http://www.slate.com/id/2223378/?wpisrc=eDialog). They found that there were marginal changes in behavior when borrowers became aware of the longer term costs of these loans (10% reduction in borrowing). They thus argue for more information disclosure for borrowers. The more fundamental question, of how we can allow 400% interest rates in contemporary society, remains largely unexamined. This is not surprising coming from the epicenter of capitalist cheerleading. But even as Ohio and the military cap interest rates, much of the country has done little to address the general rise in the cost of borrowing for consumers.

Even as interest rates were dipping in the 90s, credit cards and other lenders gained considerable advantages through the banking reform passed late in Clinton’s term. Anyway remember those 30-day waive periods when no interest was charged or $5 late fees? Now banks and credit card companies charge late and over the limit fees the day payments are due and those fees have risen to $35. They also raise the interest rates on accounts the second they are maximized, generally to rates close to 40%. Not only are the poor being screwed by the astronomical rates of payday borrowing, but the average citizen has been penalized by bank efforts to squeeze even more money out of us borrowers. The latest proposal of the banking industry is to start charging people for being good customers (i.e., paying off their balances on time). They want to charge annual fees to this group and maybe even penalties for paying off balances on time. As with the healthcare reforms currently being weakened by corporate interests, the question we need to ask ourselves is whether we really believe that bowing to these interests really serves the common good.