Today's Opinions, Tomorrow's Reality 

Not Quite a Hypocrite

By David G. Young

Washington, DC, June 7, 2016 --  

Politicians want government to stop rising inequality. Step one is to stop profiting from it.

The ACE Cash Express in Northeast Washington DC occupies a storefront in a typical rundown strip mall. After getting a payday loan, you can walk down in Hechinger Mall's cracked concrete parking lot to get a bite at a cheap Chinese takeout, look for bargains at a couple of dollar stores, groom yourself at a nail salon, all before topping up at a prepaid cell phone shop.

Of all these businesses targeting the poor residents of adjacent neighborhoods, none are derided as much as the payday lender. Google recently began refusing to accept advertising from them. And the Obama administration recently announced new rules to crack down on their exploitive behavior.

It's not hard to see why companies like Check n' Go, Advance America, and America's largest chain, ACE Cash Express have earned detractors' ire. The companies target mostly poor, largely financially unsophisticated borrowers, and saddle them with high interest loans that typically end up being rolled over again and again as the chains profit from folks living on the margins. Regulators claim that the average interest rate charged to payday loan customers is 390 percent, and over 80 percent of loans are not paid off when due, forcing borrowers to take out other loans within a month.1

The companies force lenders to hand over access to their checking accounts so that onerous fees may be extracted at will. The business model relies on exploiting the weakest. It is the epitome of usury, a practice condemned by Jewish, Christian and Muslim texts, and at times outlawed by all these religions, yet somehow accepted in our modern society. When is the last time you heard a religious fundamentalist rail against high interest rates?

New regulations proposed by the Consumer Financial Protection Bureau would crack down on these lenders. They would be prevented from giving a second loan to a borrower in a 30 day period, would be required to verify the ability of a borrower to pay back the loan on time (without seizing the paycheck or car title offered as security), and would be restricted in the fees they could charge.2

The goals of these rules sound all well and good. But Americans would be wise to take a skeptical eye toward the government's efforts to help. When it comes to the finances of the poor, governments have been as likely to join in on the exploitation as they have to come to the rescue. Within a block of the front door of the ACE Cash Express outlet are numerous storefronts -- Star Grocery, New York Liquor Store, and a Safeway location, where neighborhood residents can spend their limited cash on the DC Lottery.

Since its inception in the early 1980s, the DC Lottery has targeted the exact same poor and financially unsophisticated residents of the neighborhoods near the ACE Cash Express. State and local lotteries put up ads at places like bus stops offering a quick path to wealth and dreams. Americans spent over $70 billion on lotteries in 2014, more than sports, movies and music combined.3

Most lottery tickets are sold to poorer Americans, while proceeds go to schools and other services used by all. This amounts to a regressive tax that exacerbates America's growing problem of income inequality. What's worse, the advertising campaigns and game titles by lotteries essentially offer horrible financial advice, suggesting that a ticket can be a path to fortune. "Win for life!" and "The Big Payback" may potentially be true for a lucky few, as a whole, lottery spending is a huge financial drain on poor communities where cash is short and the need for hope is overwhelming.

To be clear, lotteries and other government gambling operations are run by state and local governments, not the federal government. So the Obama administration's crackdown on exploitation of the poor by private industry is not hypocritical insofar that the federal government doesn't join in the game like state and local governments do. That said, given the government's purported role of protecting its citizens and the poor, stopping government exploitation of the weakest should be prioritized before going after folks in private industry doing the same. For government to have the moral high ground in the fight against inequality, it must stop profiting from its perpetuation.


1. CNN Money, Three Rules That Could Change the Payday Loan World, June 2, 2016

2. Ibid.

3. CNN Money, Americans Spend More On the Lottery Than On..., February 11, 2015

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Business as Usual
The Hollow Fight Against Online Gambling
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