When General Assembly sessions decline into bitter deadlock and recrimination, as has been the case with the battles over the budget in the last few years, fair-minded observers acknowledge that the issues at hand are real and tough. The difficulty finding consensus is not a reflection of a flawed institution but rather of the, well, difficulty finding consensus.
But even when the battle is between a small special interest group with lots of money riding on help from the Legislature and a generally disorganized public, it’s still no contest. Lawmakers rush to act as maître d’ when the pigs start lining up at the trough.
Such was the case over the past week when legislation to increase the fees payday loan companies are allowed to charge rocketed breathlessly through the House and Senate. The speed should not surprise anyone; like Macbeth pondering Duncan’s murder, the lawmakers were aware that “if it were done when it were done, ’twere well it were done quickly.”
The matter is not quite over, as the Senate must yet consider a House amendment, but the outcome seems resolved. The payday or check advance loan business gives small borrowers cashusually about $200in exchange for a check dated two weeks later. It is one of the further shores of the American financial services industry, being more respectable than auto title loans but not as respectable as pawnbrokers.
The business has grown throughout the United States during the last 10 years, and the General Assembly legitimized it by passing loose regulatory legislation, limiting loan charges to the lower of $30 or 15 percent. The regulations also prohibit court costs, legal fees, or service charges for defaulters.
While the charge sounds modest, it amounts to a usurious interest rate. A $200 borrower who let his debt accumulate without making any payments would find himself owing $7571.36 after one year. (Strictly speaking, that shouldn’t happen because the law prohibits rolling over the loans for more than two weeks. But critics contend the regulation is widely ignored.)
After four years of prospering, even under the state law, the check loan people were back up on the hill asking the state to jack up the amount of money they could get out of their defaulters. Specifically, the industry wanted to be able to collect a bad check fee of $20 plus court costs and attorney’s fees if they had to go to court to collect. The total bill for collection could add $170 to $200 to the cost of borrowing the money for anyone who fell more than 10 days late in paying off his check loan.
The change represented backtracking on the 1997 compromise struck in the Legislature when the business was authorized amid some controversy. By ruling out the additional fees, some critics went along with the hefty implied interest rate. Now the industry contends the interest rate is not enoughor alternately, that it just needs a bigger stick to keep its customers from figuring out that the lenders don’t have a lot of leverage to make sure they pay up on time.
The bill slid through the Senate 22 to 8 on those terms, but as the bill picked up press scrutiny by the time it got to the House, members got a little nervous and stripped out the provision for legal fees, leaving in place the court costs. The narrowing House margin of 55 to 42 in watered-down form probably reflected the Dracula effect: It was the kind of bill that didn’t do well in daylight. Industry representatives said that was enough to give them the leverage they wanted.
The Legislature’s handling of the matter raises two questions. The first is how well lawmakers do when they don’t have contending sets of lobbyists to check their worst impulses. There is a tawdry list of consumer issues in which lawmakers have sided with industries despite considerable press baying about the one-sidedness of the question. The automotive lemon law (which restricted consumer recourse if a new car was defective), the building materialmen’s lien law, credit life insurance regulation, and the milk producers’ compact were all famous battles in which the lawmakers stood firmly behind a few special interests against the general public until the critical mass of press criticism made it unsafe to continue.
The reason for it is rather perplexing. One generally assumes lawmakers get into politics to do good for the public at large rather than just to help their friends. But the atmosphere of the legislative session is something different. Legislators gather in Nashville with their friendsthe lobbyistsfor a protracted fraternity party that is known as the session. In that closed system, it is easy to lose sight of the people at home, who tend to be an abstraction on most days except the first Tuesday in November.
Meanwhile, a legion of lobbyists is in their faces every day, making their one-sided version of the truth as their clients pay them to do. “The most corrupting thing up here is friendship,” one lawmaker explained. The lobbyists are not sleazy; they’re just doing their job. If enough of them are around to cancel each other out, lawmakers make judgments about what’s right. If there are no lobbyists on the other side, the other side never gets told.
The other question about the Legislature’s handling of the check loan issue relates to campaign finance. Lobbyists and industry members poured over $250,000 into the lawmakers’ campaign funds over the last five years. Pretty much everyone in the General Assembly has gotten some money from the industry.
When the lawmakers roll over for the big moneybags like that, it’s tempting to see their behavior as overtly corrupt. But that’s too simplistic. There is never a quid pro quo in these relationships, but lawmakers are aware of who is worth helping based on how helpful they have been in the past. The mutual seduction is indirect.
To be sure, no one can survive in politics without wallowing in a little grime. The Senate sponsor of the bill, Democrat Bob Rochelle of Lebanon, has said to some colleagues that he thinks he will need to raise $1 million to be reelected next year after his leading role as an advocate for the income tax. No doubt he views this as one of the small prices for being part of the big picture.
Of course, there is a temptation to say that no tears should be shed for the borrowers. After all, nobody makes them engage in these transactions. Moreover, despite the debate about whether the new bill preys on poor people, it is pretty clear that the industry does not serve the poorest of the poor. At the least, the customers all have checking accounts. They are not entirely estranged from conventional financial service practices. Few loans are made to people without jobs.
For most of the people who fit this profile, it’s hard to see the utility of this product. But that’s a judgment for the customers themselves to make. The fact remains that the customers aren’t the people with big credit lines at the bank or new credit card offers coming in every day. They are the modest work-hard-and-play-by-the-rules crowd that Bill Clinton used to talk about when he could still say stuff like that without provoking guffaws.
That’s why the Legislature’s insensitivity to how the rules are set up for people like that is so dismaying, especially when many of the key people involvedsuch as House sponsors Lois DeBerry, the speaker pro tempore, and Randy Rinks, the Democratic caucus chairmanare among those most often viewed as friends of the average working man. (Some Republicans, such as House leader Steve McDaniel, are for it too, but one always expects Republicans to get confused when they’re told the bill is to help small business.)
Being in politics is a great opportunity to help people. It’s most funand most rewardingwhen the people being helped are the ones who actually need it. But that doesn’t happen as often as it should.
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