20/20 Takes on Credit Card Debt; Payday Lenders as Lions in the Economic Jungle, and More

by Deepak Gupta

Tonight, at 10pm EST, the ABC News Program 20/20 will air an episode entitled "Flat Broke: Begging And Borrowing In America."  I'm reliably informed that the segment will include interviews with prominent consumer advocates, including Professor Elizabeth Warren of Harvard Law School and a NACA member or two.  You can read one of the stories that will be featured tonight here.   The episode looks promising and seems to be part of a noticeable upswing in mass media coverage of credit and debt issues.

On the other hand, if you're familiar with the work of the conservative ABC News correspondent John Stossel, you won't be surprised to hear that--despite every indication that the rate of complaints against abusive and out-of-control debt collectors is skyrocketing--he was somehow able to muster a story that's largely sympathetic to the collection agencies; debt collectors, it turns out, are people too.  ("Is Debt a Four Letter Word?  Why Some Americans Need to Learn to Pay Up").  Along similar lines, The New York Times yesterday ran an astonishing column by the Cornell economist Robert Frank, comparing payday lenders to blameless lions in a jungle of lax credit--moral outrage against the industry, the author suggests, is misdirected; they're just following their Darwinian role preying on weaker members of the community.

Comments

[David Giacalone]

Ted, the typical payday loan has an effective APR of 400%. Such lenders should not be deemed "legitimate" under our laws. Their excesses need to be curbed. See the Center for Responsible Lending for a list of potential alternatives to payday loans - http://www.responsiblelending.org/issues/payday/briefs/page.jsp?itemID=29573161 .

You know, at times, it seems that mafiosi have bigger hearts than free market absolutists.

[Ted]

What I find jaw-dropping is the idea that attacking payday lenders will somehow make the poor better off. Do the poor really prefer to black-market borrow from mafioso at 50% a week instead of 50% a year when the remedy for default is physical injury or servitude instead of foreclosure? It's not like the poor will stop wanting to borrow money if legitimate lenders are prevented from covering their costs by doing so.

[David Giacalone]

Deepak, you seem to have misinterpreted Frank Rich's column. He is not condoning payday loans. He compares them to heroin and says we need legislation to combat them. Predatory lenders are doing what capitalists do in a free market -- exploit legal opportunities for profits. Rich wants our outrage to be aimed at "A more deserving target" than the lenders: "legislators who supported lax credit laws in exchange for campaign contributions from lenders — or, better still, those who have steadfastly resisted campaign finance reform." Payday lenders are not going to change their tactics because of the outrage of consumer advocates. Like Rich says, it is going to take legislation that basically makes those kinds of loans unlawful or unattractive to those who want super-profits.