Look no further than Mr. Cuccinelli’s comments on predatory lending.
Mr. Cuccinelli was asked for his thoughts about predatory lending and whether he would support an interest rate cap. Here is his complete answer (emphasis added):
People wouldn’t use them [payday loans] if they didn’t need them. The alternative for a lot of these folks is nothing for some, and for others it is running up their credit cards.
This is not an illegitimate product, although it is clearly an expensive one. What we find, in my neighborhood, I have one of these near my home, is that people use them for a short term problem, try to get by the problem, and pay it back and get ahead.
Now, the problem arises when people start getting into the cycle of debt, where they can’t get out of it. That’s true of credit cards as well. Certainly, what we need to focus on in the Attorney General’s office is to make sure the lenders are telling folks the truth and giving them the full picture of the consequences of the contract they are about to enter. With that step taken, I believe widely in letting people contract for what suits their needs at the moment, as long as it’s within the law.
Mr. Cuccinelli’s answer is a fine one for a Delegate or State Senator to give, albeit one with which I would disagree. It closely tracks the industry’s talking points, and is carefully designed to put a legitimate moral face on what is simply legalized loan sharking. If a legislator wishes to spout the talking points of a favored industry, and cast his or her votes in favor of that industry, that is between them and their constituents.
But the job of the Attorney General is different, and the spouting of talking points from a predatory industry by a candidate for that office is completely inappropriate.
Among other responsibilities, the Attorney General serves as an advocate for and protector of Virginia’s citizens. When it comes to predatory lending, that obviously requires both an understanding and appreciation of the devastating effect these loans have on innocent peoples’ lives.
In saying that predatory lending is “not an illegitimate product,” Mr. Cuccinelli demonstrates that he possesses neither. Further, in his futile attempt to defend this industry, Mr. Cuccinelli unwittingly becomes the witness in chief in establishing his disqualification for the very office he is, paradoxically, seeking.
According to Mr. Cuccinelli, payday and car-title loans are designed as a one-time short-term fix for people in need of money. “What we find, in my neighborhood … is that people use them for a short term problem, try to get by the problem, and pay it back and get ahead,” Cuccinelli said, adding almost as an afterthought, “Now, the problem arises when people start getting into the cycle of debt, where they can’t get out of it. That’s true of credit cards as well.”
But the fact is that Payday and car title loans are not, in practice, short-term, one-shot loans. In fact, according to the group Virginians Against Payday Loans, 99% of payday loans are converted into long-term debt.
Data from the Virginia Organizing Project tells the same story. According to VOP data from 2005, 90% of these predatory loans were made to persons who take more than five loans per year. Amazingly, 62% of the loans were made to people who take out more that twelve loans per year!
The industry is obviously hip to this economic reality. The VOP reports that more than 90% of the industry’s revenue is derived from fees paid by these trapped borrowers. In 2006, the VOP found, the typical payday borrower paid back $793 for a $325 loan.
Make no mistake, this is exactly what the product is designed to do – otherwise, the predatory lending financial model will not work. Consider, it cost lenders money to secure each new customer, i.e., advertising, paperwork, credit checks, etc., but the cost of developing business from a trapped borrower is relatively minimal, because they have no choice but to come to the lender and borrow more.
So, right off the bat, for someone as intelligent as Mr. Cuccinelli to describe these lending products as legitimate because they are just short-term, albeit costly, one-time loans to tide people over until they can get back on their feet is -- and there is no way to sugarcoat this -- a lie.
In this sense, payday and car-title loans are a classic bait and switch, advertising themselves as a relatively fair and simple transaction to attract customers, while the lenders real goal is to trap borrowers in a long-term cycle of debt.
It is mind-boggling to me that a candidate for Attorney General, even a Conservative Republican, would defend this as a “legitimate” consumer business tactic. Simply amazing. There is no honor or principle involved in defending abusing fellow citizens.
Further, Mr. Cuccinelli mentions the problem with being trapped in a cycle of debt in an almost off-hand manner, comparing it to revolving credit card debt, minimizing it by comparing it to something that millions of Virginians do every day in a responsible manner. In doing so, Mr. Cuccinelli removes any doubt that he is simply misinformed about the severe effects of predatory lending, and makes it clear that he is involved in active deception of the havoc such lending wreaks on thousands of Virginians.
Finally, Mr. Cuccinelli drives the final nail in his coffin with his assertion that payday lending is simply a matter of allowing people to contract for what suits their needs. No honest, knowledgeable and serious attorney can believe this to be the case.
In a payday lending transaction, almost by definition, involve unconscionable adhesion contracts that would not be enforceable but for the legitimacy laid upon them by Virginia’s ill-advised and ill-enacted legislation. The borrower is always desperate. Furthermore, the gap in the relative sophistication level of the lender and borrower is typically quite large. So, even as the law declares these agreements to be lawful, as a moral and ethical matter the parties to these transactions are in no way on equal footing bargaining at arms length. To suggest entry into predatory lending agreements is simply a manifestation of the free right to enter in contracts, good or bad, turns the entire idea of freedom on its head. Freedom does not mean that the rich and powerful in society ought to be free to abuse the weaker and more needy members of society, does it?
Finally, the suggestion that all this can be cured by some frm of disclosure is naive, at best, and dishonest, at worst.
Look, I am 180 degrees opposite from Ken Cuccinelli on the political spectrum, so I wasn’t going to be voting for him either. And the problem is not that Mr. Cuccinelli is misstating the current law – predatory lending is lawful in Virginia.
But that doesn’t make it right or ethical or moral, and the fact that a candidate who aspires to be Attorney General of Virginia presents himself as a defender and apologist of the disgraceful predatory lending industry just makes me sick.
Crossposted to Blue Virginia