The following is from a New York Times editorial:
The predatory industry known as payday lending is finally feeling the bite of state authorities alarmed that low-income borrowers are being gouged into long-term debt running at impossible interest rates of 500 percent and more.
A prominent online lender that has increasingly run into state challenges — Western Sky Financial, owned by a tribal member of the Cheyenne River Sioux — has just announced that it will stop financing loans next month. Fifteen states have banned usurious payday lending to protect workers from the servitude of compound interest fees worthy of loan sharks. In reaction, lenders are looking for other ways to ply their abusive trade.
Western Sky Financial's retreat is a significant step forward in the government crackdown on payday lending. The company faces usury law challenges in five states — most recently in New York, where Attorney General Eric Schneiderman filed suit this month charging the company with levying interest rates of more than 300 percent in violation of state law that caps interest at 25 percent. New York authorities have ordered 34 other online and American Indian lenders to stop providing online payday loans in the state, prompting American Indian groups to begin lawsuits in the name of their sovereignty.
Payday lenders gull people into supposedly short-term borrowing until their next payday under terms that turn out to balloon the obligation into unsustainable long-term debt under a crescendo of interest costs. Millions of borrowers have become entrapped in situations where a supposed two-week loan rolls forward for an average of five months.
Tighter regulation by states is needed along with new federal protections to stop lenders from raiding borrowers' bank accounts. Firm standards and controls can rein in the abuses.
