It was holiday generosity that ultimately led Tyrone Newman to make a desperate deal.
And who could blame him?
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He had been laid off and unemployed for a year, picking up the kids and doing laundry while his wife worked as a security guard. So you can understand why a 47-year-old guy would want to celebrate a bit after a good, long year at a solid job.
“I did it all up. I bought a tree this time. We got a turkey with all the trimmings,” Newman told me, his golden eyes growing wide as he explained the largess that was his undoing. “You know, you get happy, and you just start spending.”
All told, the maintenance man for a Northeast Washington apartment building went overboard by about $1,500.
Come January, he didn’t want his wife to know he’d spent that month’s mortgage payment on Christmas gifts. Stuck in traffic on the way to work, the radio spoke to him.
“Get cash NOW! Bad Credit? NO PROBLEM!” he remembered the booming voice on the radio speaking directly to him. He called. And within a couple of hours, $500 was in his bank account.
The interest rate? 651 percent.
But $500 wasn’t enough.
“No problem!” the payday lender on the phone told him. A sister company could get him more cash. Another call, another fast-talking storm of conditions and rates and restrictions. Newman gave them his bank account numbers, and, zap, $500 more was in his account.
He made the mortgage payment and was done.
Then the interest charges and “loan-renewal option” fees started piling up. The math was crushing.
If he took a year to pay down just one of those $500 loans, it would turn into about $6,000. Three loans and Newman’s relatively modest (by most American standards) Christmas would cost him $18,000.
This situation, sadly, is not that unusual among working people like Newman, who makes about $16.50 an hour. Their lives can be a Sisyphean struggle, unrelenting and utterly merciless when it comes to mistakes.
And guess what? The loans were totally legal!
“These triple-digit rates are worse than any loan sharks,” said Kathleen Day, spokeswoman for the Center for Responsible Lending, an advocacy group. “And they prey on the most vulnerable.”
In 2007, the District worked hard to put a stop to payday lenders in the city. Council members Mary M. Cheh (D-Ward 3) and Marion Barry (D-Ward 8) sponsored a bill to run them out by capping interest rates — no more than 24 percent on a loan.
It passed 12 to 1, with Barry, oddly, being the only member to vote against it.
Similar legislation was enacted in Maryland, Virginia and about a dozen other states to put double-digit caps on the lenders. But Newman’s loans didn’t come from any of those places.
Because a 39 percent interest rate — as scary as that sounds to most folks — isn’t enough for payday lenders, most of these outfits turned to car title lending (they can take your ride) in Virginia, which was unregulated until the state enacted legislation in 2010.
If you need any more evidence that this industry targets the desperate, take a look at the Military Lending Act, passed by Congress in 2007, to protect military families from predatory lenders that set up shop near military bases.
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