Tuesday, May 11, 2010
As legislation advances in Congress to crack down on consumer-unfriendly lending practices, staffers in the offices of California Sens. Barbara Boxer and Dianne Feinstein noticed a funny thing last week: Customers of online payday advance lenders were calling by the hundreds to oppose the bill, and all seemed to be repeating the exact same phrases.
The staffers were right to be suspicious.
Payday loan lenders are notorious for their high fees and interest rates, and they may face new restrictions as part of efforts to overhaul the financial services industry and create a Consumer Financial Protection Agency.
Yet customers of these companies were calling to demand that government authorities leave the industry alone and allow consumers to make their own financial decisions. They said they wanted Boxer and Feinstein to vote against the reform legislation.
The outpouring of ostensibly spontaneous consumer rage was in fact an effort on the part of the payday lending industry to sway the vote on financial reform. It was also an extraordinary application of pressure on a vulnerable segment of the community: people with high-interest paycheck loans who could be financially devastated if the issuers of those loans suddenly demanded their money back.