Gary Rivlin is most recently the author of Broke USA: From Pawnshop to Poverty, Inc. — How the Working Poor Became Big Business.
Condition of Mr. Segundo: Considering the advances of a seductive loan shark.
Author: Gary Rivlin
Subjects Discussed: [List forthcoming]
EXCERPT FROM SHOW:
Rivlin: One in every five customers is taking twenty or more payday loans a year. So suddenly this effective interest rate of 400% becomes the actual interest rate. I mean, if you’re taking out twenty payday loans a year, that’s pretty much a loan every two weeks. And so you’ve got a couple million people a year in this country who are essentially paying 400% for their money to put it into dollars and cents. For that $500 loan, they’re paying $2,000 in fees for the year. So it’s the trap that a payday loan becomes, that I focus in on.
Correspondent: I wanted to talk about Martin Eakes, the man behind Self-Help and the Center for Responsible Lending. He offers a more reasonable APR through his credit union. His crusading has helped to initiate reform in numerous states. High-interest loans. Mortgage premium penalties. He’s been on it. His opponents, they point to his self-interest in creating caps that are uniquely beneficial to Self-Help. I want to address this. I mean, what of a credit union’s interest fees on overdrafts? Just to give you an example, if a consumer gets a hit, the median overdraft fee is about $27 on a $20 debit card transaction. They repay the charge in two weeks. And, according to the FDIC, that’s a 3,250% APR. That far outshines that $33 per $100 cap in Indiana. That works out to 858% on a two week loan. So I’m wondering if credit unions are, in some way, just as problematic. Or perhaps even more problematic on the overdraft charge than payday lenders, when we consider this?
Rivlin: Right. You’re giving the argument that the payday lenders make that I was starting to make myself before. That you could look at our 400% interest rate. But go start doing the math. As you just did. On bounced checks or late credit card fees. And again, that’s a legitimate point. Martin Eakes is one of the main characters in my book. He’s just a really interesting, quirky fellow. A few fun facts. He claims he’s never had a sip of alcohol in his life. He testifies all the time before Congress. Gives speeches. He owns a single suit to save money. His wife cuts his hair. My favorite quote from him is “Half the people I know would take a bullet for me and the other half would fire the pistol.” And that’s accurate. He’s really been out there as a leading crusader, not the leading crusader, against subprime mortgage abuse. Against the payday lenders. Against some of the more abusive policies.
Correspondent: And the people who work for him have salary caps as well. It’s not exactly a lucrative prospect to work for him.
Rivlin: The payday lenders and others try to tar Martin Eakes. But he’s a little bit Ralph Naderish in that way. He’s hard to tar. There’s a rule within his credit union that no one can be paid more than three times more than the lowest paid employee. And that means that this guy, who runs essentially a billion dollar operation — they’ve done a lot of home loans — is getting paid $69,000 a year. I guess everybody roots for the receptionist to get a raise.
Correspondent: Yeah. Well, hopefully the MacArthur money was disseminated around. But you do have to make some kind of money. And as we’ve determined with this overdraft situation, that’s quite an interest.
Rivlin: Well, a few things. One way you misspoke was that his credit union doesn’t offer payday loans. His colleagues in North Carolina. The big North Carolina credit union for teachers and state employees. They offer a payday loan with an effective annual interest rate of 12%. 12% versus the 400%. And I met with the fellow who runs that credit union. And he called it the single most profitable loan that they offer. But getting back to the criticism that they level at Martin Eakes — that isn’t he just a competitor? Isn’t he just fighting the payday loan industry because he’s looking out for the bottom line of his own credit union? Well, one problem with that is — it was in 2001 that Martin Eakes and others in North Carolina kicked the payday lenders out of the state. Martin Eakes’s credit union — you’re only eligible to participate if you live in North Carolina. So he won the fight in 2001. Why is he still fighting the payday lenders across the country given that his bottom line is only affected in North Carolina? I find the argument — I heard it from every payday lender I met with — that Martin Eakes is just a competitor; it’s just very specious. He’s a crusader. He might see the world in black and white, where these things should be outlawed period. But I think he’s genuine in his criticism. I don’t think it has anything to do with his credit union. His credit union doesn’t even offer credit cards to rack up the late fees.
Correspondent: But how much does he charge for overdraft fees?
Rivlin: Twenty bucks.
Correspondent: Twenty bucks.
Rivlin: I was really curious about that question too.
Correspondent: I mean, that’s just — you’re still dealing with a pretty substantial APR. When does that $20 kick in?
Rivlin: Yeah. Well, you know, the problem with APRs on a bounced check is that it depends upon how long it takes for you to become whole again. I mean, there’s that $20 fee. But then there’s interest and other penalties when you’re late. But we can just say it’s enormous. It’s typically higher than 400% for the payday.
Correspondent: It’s below the median rate. That’s for sure.
Rivlin: Martin Eakes runs a not-for-profit credit union. He charges a bounced check fee like everybody charges a bounced check fee. It’s lower than the average, but still high. You know, I don’t know what to say about that. But I do think, as long as we’re talking about Martin Eakes, that this credit union he started, dating back to the 1980s, they’re a subprime mortgage lender. I mean, I hasten to add, given the association people have that he’s a different kind of subprime mortgage lender and started charging four or five or six or seven percent above the conventional rate. He charges 1%. You know, his loans didn’t have huge up-front fees. He made sure that you could pay it back. That if you make $25,000 a year, that you’re buying a house for $50,000, let’s say, rather than a $300,000 house that you’re never going to be able to afford. But this credit union is specifically for those of modest means. About half his customers are single moms. About half the people who bought homes using loans from him are people of color. He’s making loans in rural communities. People who live in trailers who can move into a modest-sized house and have, as he would put it, a bricks-and-mortar savings account. A home. He is doing a lot of good. Thousands and thousands of North Carolinans are living in a home who wouldn’t otherwise.