Business as Usury

Before Congress goes after bank misdeeds on Wall Street, let's stop the petty theft on Main Street. I mean the predatory mortgages and usurious loans. Had we protected the poor and the weak, the problems of our mighty banks might not be so great. Why don't we have a "National Usury Act"? Why, in the party of William Jennings Bryan, is there no one demanding an interest cap on our Visa cards and our MasterCards?

But let's start with payday loans. In Chicago, payday lenders charge more than the Mob wants for juice loans. I have a client who pays 700 percent! And a lawyer friend at Legal Services told me, "I had a woman come in -- she gets $1,100 a month for Social Security and pays out $800 a month for her payday loans."

These people aren't idiots, or in need of counseling or more "disclosure." One of my clients was in payday-loan hell and climbed, cut and bleeding, back to solvency. But then the city booted her car, an uncle living with her lost his job ...she's back in hell again.

In a country of no real safety nets, the ersatz American safety net is a payday loan of 700 percent. In 38 states, payday lenders run wild. I should say that in Illinois, there is a cap of 400 percent. But this applies only to loans of 120 days or less, so the lenders just make the loans of 121 days or more. The Illinois General Assembly, in the grip of the bank lobbies, just looks the other way.

If you like, we Americans are "at fault." We go into debt too easily, we have bad moral character. But who corrupted us? America's financial and political elites, when they deregulated interest rates and loans.

Think back to the dueling bankers in the Frank Capra movie It's A Wonderful Life. There's mean Mr. Potter and nice George Bailey, and both of them want their loans to be repaid. The professors in our law schools used to wag their fingers and state the golden rule: "Ladies and gentlemen, the loan must be repaid!"

So both Mr. Potter and George Bailey wanted to lend only to people of good moral character: After all, in that innocent and regulated era, they could only loan out money at no more than 9 percent. If you can only lend at 9 percent, you want the loan repaid.

But when Visa and MasterCard came in, and banks could lend at 17 percent or 18 percent or higher, then only the bankers who still wore morning suits and spats wanted the "loan to be repaid." Suddenly, with deregulation, the banks were no longer subject to interest-rate caps at all. Liberals on the Supreme Court hurried this deregulation along. In the 1978 Marquette Bank ruling, Justice Brennan struck down any state law that tried to regulate the interest rate on a Visa card from a "national" bank, subject to the National Banking Act passed at the time of the Civil War.

Today, bankers don't want the loans repaid. After all, if you can charge 700 percent on a $100 loan, do you want the loan repaid? That may be an extreme case, but everyone knows that the big banks offering Visa cards and MasterCards don't screen for moral character. They don't want good moral character. Our way of life depends more and more on people not having good moral character. That's why instead of dressing in our best to ask Mr. Potter for a loan, we get credit cards unsolicited in the mail.

Yes, it explains why we're all in debt. But it also explains why the investment of our capital has tilted away from manufacturing with its meager return and into ļ¬nancial services and banks, where rates can go up to, well, 700 percent. Is it any surprise that we're de-industrializing? The left carries on about NAFTA but never dares to mention a cap on interest rates. We may be the first society since the Code of Hammurabi to be operating with no law against usury at all.

I'd at least like to hear a Democrat, any Democrat, call for a cap on interest rates. For Visa and MasterCard, I'd go for 12 percent. (Does anyone bid 11?)

As to payday loans, let Congress end them. But how will people get money? If people can't get credit from Visa and MasterCard, let's set up little state-run banks to offer little payday loans, or encourage NGOs to do so. New Dealers used to think in those terms. But they used to go to movies like It's A Wonderful Life.