The governor-appointed Ferguson Commission, called together after the police shooting of 18-year-old Michael Brown, is calling for sweeping policy changes in Missouri. Among the topics the report addresses are race, policing, education, the courts, Medicaid and finance.
Chief among its recommendations is that Missouri end the practice of predatory lending, in which borrowers are charged triple-digit interest on their loans. The practice is common in disadvantaged neighborhoods.
U.S. Senator Jeff Merkley, a Democrat from Oregon, cracked down on predatory payday lending when he was Speaker of the Oregon House of Representatives. More recently, he’s been calling for stronger federal rules limiting payday lending. He speaks with Here & Now’s Meghna Chakrabarti.
Interview Highlights: Jeff Merkley
Predatory lending in his community
“At the time, I was a state legislator, state representative representing the blue-collar community where we had a payday lender on what felt like every corner – and in some spots, you could stand on the street and see three payday lenders. And these lenders were charging normally around 500 percent interest and were having a huge negative impact on the community. So that’s really what brought it to my attention.”
Were these type of lenders adding to the poverty in the area?
“A huge, huge contribution to poverty. If you think about someone taking out a small loan – and to use round numbers – a $1,000 loan. In a year, you owe back $5,000. In two years, you owe back $25,000. It becomes a vortex of debt that families cannot escape. It drains them of all their resources until they eventually end up in bankruptcy. And in the course of that, the family in the course of making those payments forgoes all kinds of positive opportunities they could have had to enrich the lives of their children and put their family on a better financial basis.”
You capped the interest rate at 36 percent. That still seems high.
“Well it does sound high, but a $1,000 loan after a year, you’d owe back basically $1,360. That’s a significant amount of interest, but it’s not a death knell to a family. That’s the difference between that number – $1,360 and $5,000. They’re in a different universe. The place where I really came home was – I was back visiting a food bank on the Oregon coast, and the first thing the director of that food bank said to me, she said ‘the great news here is we used to have families coming in needing food because they’d been devastated by payday loans. Those families are no longer coming.’ What we know from every state that has undertaken this – so we have all these state laboratories – is that when you cap payday lending interest rates, the payday lenders stayed. Not all of them stayed. The number of storefronts may diminish, but they are still, there’s still plenty of access for every community, but instead of getting a loan at 500 percent, you get a loan at 36 percent. Much better deal for low-income families.”
Are companies finding their way around this law by moving online?
“Yes, and so online is a challenge. They can operate from overseas; they can open up a new website every day. Once they get the bank account number of an individual, they can reach in and grab that individual’s funds and they can do it from almost an untraceable foreign location. The Oregon legislature is still working to take that on. We have an effort by the Justice Department to take that on. The Consumer Financial Protection Bureau is working to figure out a way to take that on, but it’s still worthwhile nailing down the principle that it’s illegal to do loans over 36 percent. And then collectively across the nation, we’re going to have to keep fighting to take on these lenders operating in the shadows and protection and anonymity from the web.”
On the potential government shutdown ahead
“What I anticipate is that we will have a continuing resolution, which will essentially take the budget from last year and extend it for a few months. This is not an ideal solution, but it’s much better than shutting down the government. We have a situation where not a single spending bill of the dozen major spending bills has gone through the U.S. Senate, and a lot of that has to do with a battle over the general construct of the budget. That is what my colleagues across the aisle have done, is to say they are going to break the deal on sequestration, the budget caps, and they are going to do an off-budget massive increase in military spending while short-changing domestic programs. That’s really unacceptable. We shouldn’t have funded the Iraq war off-budget; we shouldn’t have funded Afghanistan off-budget; we certainly shouldn’t make it mainstream military funding off-budget. So the showdown will probably result in a short-term truce.”