Saturday, May 9, 2009

Governor's Race Campaign Contribution Report Card - Predatory Lenders

Most people of reasonable intelligence and minimal ethical standards can agree that payday lending and its cousin, car title lending, are immoral, unethical, destructive and unfair. Interest rates that can be 350% or higher (once all fees are calculated) are the norm, and while a small minority of people can use this type of expensive credit responsibly, the vast majority of people who enter this system -- by definition among the weakest of our community financially -- find themselves trapped in a situation from which there is no exit.

So, how can any responsible legislator or public servant support predatory lending? On the surface, they accept the arguments of the industry that they are providing a needed service at a fair price -- one of those arguments that can sound logical and is maybe 5% true, perhaps just enough to make it with a straight face, but which actual experience shows is 95% hooey.

Nor is this a partisan issue. Much to my disappointment, many Democrats, such as Dick Saslaw, have been good friends to this despicable industry over the years. On a macro level, of course, the answer is simple: Money. It's not a case of illegal quids chasing willing quos. Rather, since 2002, when predatory lending was first permitted in Virginia in a misguided attempt to regulate and control the industry, consumer lenders have dumped nearly $2 million into Virginia's political coffers. That's about $286,000 per year -- not exactly chump change.

All the Democratic candidates for Governor have called for the banning of predatory lending in the state. Bob McDonnell has been a supporter of it, and although as attorney general he did pursue individual predatory lenders who did not follow the rules, he did not aggressively try to ferret them out. Even so, the issue is not predatory lenders who flunked out of scam school and can't follow the law; the issue is the law itself that, not to put too fine a point on it, legalizes loansharking.

This industry does not so much want to be coddled as it just wants to be left alone while it screws the working poor, and it is willing to pay our leaders to do nothing.

So, I thought I see how all four candidates fare with respect to taking money from the predatory lending industry ("lending companies" or "consumer credit" in the anodyne language of VPAP) , both in connection with their Gubernatorial campaigns and over the course of their political careers since 2002, and what if anything it says about the candidates.

Creigh Deeds:
Total contributions since 2002: $6,750
Contributions accepted as candidate for Governor: $0
Contributions accepted as candidate for AG: $3,000
GRADE: A-. As AG, you have to prosecute predatory lenders, and you just should not take a cent from them -- no ifs, ands or buts. That said, these are pretty paltry amounts, and it is clear the industry has never seen you as a friend of theirs, but still, no "A" for you, Creigh.

Bob McDonnell:
Total contributions since 2002: $76,014
Contributions accepted as a candidate for Governor: $16,700
Contributions received in connection with run for AG: $55,664
GRADE: D. I'm only mildly bothered by the $16,700, since it will be a drop in the bucket when all is said and done in this election. But $56K was a lot to take in the run for AG (See discussion on Deeds above). That said, in my heart I do not think Bob McDonnell is corrupt, so he doesn't get an "F". Nor do I think the contributions to him are even designed to earn his favor -- they are way too small. Rather, these contributions reflect the fact that predatory lenders already know McDonnell has their back and they think it would be better for their businesses to see him elected. These contributions, therefore, are not only appropriate, I encourage them. This is what our political system is all about -- supporting the candidate you like best.

That makes Bob McDonnell honest, but morally impaired. To tell the truth, I'd feel better if he were simply corrupt.

Brian Moran:
Total contributions since 2002: $29,750
Contributions accepted as a candidate for Governor: $250
GRADE: B-. Moran has taken only $250 in his run for Governor, and $30K over 7 or 8 years of fundraising -- not a huge amount. That said, of that $29,750 raised over his career from this industry, $25,000 of it has been donated over the past 3 years, and $15,000 of that from a single company -- LoanMax, of Alpharetta, GA. While that money was donated to Moran for Delegate or to Moran's leadership PAC, it obviously was to help with the Gubernatorial run. (In comparison, Creigh took in one $500 donation from American General Corp. for his Senate campaign over the same period). As with McDonnell, I don't believe Moran is being corrupted here, but the amounts are worthy of notice, and knock a few notches off his grade.

Terry McAuliffe:
VPAP records show a $25,000 contribution from Catherine Reynolds classified as coming from the consumer lending industry (her husband separately donated $25,000 to McAuliffe's campaign). Reynolds runs EduCap. While these donations might carry other baggage with them, they don't count as contributions from predatory lenders.
GRADE: INCOMPLETE. He has taken no money from predatory lenders, so McAuliffe avoids a bad grade, but given the fact that he has only been raising money for six months and has no history in Virgina politics, he is tough to evaluate.


  1. People have to just be smart about this. Realistically, stopping them through legislation is pointless. If someone is stupid enough not to realize that taking a loan with 300+% interest is a rotten deal, then why should the legislature have to step in. Some people argue that these people have nowhere else to turn. Welcome to America! People are poor.... With just a little education people can understand that there are other ways out. Consumer-advocacy groups offer free services to negotiate down payments and lower credit card interest rates. You don't have to turn to Pay-Day lending.

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  3. First off, I'm not judging Creigh harshly on this issue at all. I'm comparing all the candidates.

    Second, when you are running to be the Attorney General, and a sleazy industry that you may have to prosecute donates money to your campaign, you ought to know about it.

    Third, as I say about each of these candidates, I don't think any of them are corrupt. These donation say more about how the industry perceives them than anything else.

    Further, with respect to your first comment, first, people who are deperate for money arent paying attention to interest rates. What's more, these loan documents are confusing and difficult to understand. These are not financial transactions where people on each side have similar knowledge and sophistication. These guys are scam artists taking advantage of the most vulnerable members of our community, and I strongly believe it is the purpose of the law or the job of our government to protect them -- not from the adverse consequences of their own bad decisions, but from con men who trick them into making bad decisions.

  4. We need to return to a very old concept--Do not allow usury (excessive interest charged on loans) because it allows those that have money to exploit and control those that need money. We need a 36% interest rate cap on all lending and that includes ALL the fees they charge. If you need money you will agree to whatever is demanded and as you point out, it is never clear what is being demanded unless you carefully read every word of the very small print in your contract.

    It is a felony in Virginia to make payday loans through the internet. Many state attorney generals have put a stop to most of this in their state. Virginia (McDonnell) has done nothing.

  5. Abhorrent practices by lenders within the mortgage industry are called abusive lending. Choosing the right lender is not easy… Earned or borrowed cash are all at stake, specially your home. That’s why it is very important to be watchful and evade those Rapacious Lenders.