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Reprinted from: Zoë Elizabeth Lees, Payday Peonage: Thirteenth Amendment Implications in Payday Lending, 15 Scholar: St. Mary's Law Review on Race and Social Justice 63 (2012) (196 Footnotes) (Student Comment)
Visit the Predatory Lending Association (PLA) website and one can view its motto: “Helping payday lenders extract maximum profit from the working poor.” The site helps users identify the working poor and explains how the “debt trap” of the working poor may be optimized. While the PLA's website parodies the predatory nature of payday lenders, the humor is unfortunately rooted in the truth.
Payday loans are “small, short-term, triple-digit interest rate” loans that usually range from $200 to $500 dollars. These loans are generally secured by the borrower's post-dated check or debit authorization and are intended to sustain the borrower until payday, when they will pay back the loan in one lump sum on receipt of their paycheck. As of March 2010, “more than 19 million U.S. households had taken out payday loans worth more than $35 billion.” A payday lender's business plan is to build a base of customers who borrow frequently in order to keep up with their loan payments. Payday lenders target people who they believe will have trouble paying off their debt and thus will be repeat customers.
Take for example Sandra Harris, who borrowed $2,510 in separate loans from a payday lender and ultimately paid $10,000 in fees. Ms. Harris said that while it was fast and easy to take out the loan, no one told her “about the bad side . . . [b]ecause they wanted you to come back, that's how they made their money.” Five years after Ms. Harris first went to see a credit counselor she had only one $300 loan to pay off. That $300 loan cost her $1,200 per year in interest. Ms. Harris is the type of person that the PLA facetiously encourages other payday lenders to target; as an African-American woman suffering tough economic times, she is certainly the demographic that payday lenders actually target. Payday lenders disproportionately target minorities and those on the “fringes of the financial system.” The PLA's parody demonstrates what payday lenders are covertly and coercively doing, and in doing so, the PLA exposes the predatory design of payday lenders.
The payday loan industry thrives at the expense of millions of underclass Americans, who are generally defined as those who are economically impoverished and without the means to escape their economic condition, which includes minorities who have been hit the hardest by the current depressed economic climate. In 2011, the stocks of payday lenders soared to record highs as stocks in large banks plummeted. The anemic economic growth in the United States, banks' increasing unwillingness to lend money, and the lack of regulations on payday loans have allowed the industry to thrive. These loans trap the borrower because they are directly connected to the borrower's paycheck. The practice of payday lending and its success in keeping the economically disadvantaged mired in a cycle of poverty raises serious questions under the Thirteenth Amendment, which formally banned slavery, and which applies to modern circumstances sufficiently resembling slavery. Are payday borrowers the modern day peon whose labor is tied directly to paying off a deceitful and excessive loan? Do these loans take advantage of, and promote the residual badges and incidents of slavery that the Thirteenth Amendment sought to eliminate in society?
This Note discusses the Thirteenth Amendment implications found in payday loans and argues that the Thirteenth Amendment is a proper federal path through which to regulate payday lenders. Specifically Part II discusses Thirteenth Amendment history, scholarship, and court interpretations of peonage. Part III reviews payday lending by examining who typically takes out these loans, what the conditions of the loans generally are, and evidence as to how these loans affect the borrowers. This section also discusses the coercive techniques payday lenders use to rope borrowers into abusive loans. Finally, Part IV analyzes how conditions of payday loans trigger Thirteenth Amendment concerns. Part IV argues that by looking at the structure of the loan itself, its organization around a person's paycheck, its direct relationship with a person's labor, and the lender's coercive means to compel a borrower to take out additional loans, the Thirteenth Amendment is implicated. The targeted victims of payday lending, particularly the underclass, are proper recipients of Thirteenth Amendment relief, as they are suffering the precise effects of involuntary servitude that the Amendment was designed to eliminate.
To be sure, there will be many who disagree with the comparison of payday borrowers to antebellum slaves. I do not argue that these borrowers are subjected to the same racially infused servitude, hate, violence, and abuse. However, I do argue that the free labor concepts that drove the Thirteenth Amendment's ratification apply, and that the type of contract that payday lenders rope borrowers into is like that of the peonage contracts that are already acknowledged to fall within the bounds of the Thirteenth Amendment's prohibitions. Payday debtors, because of the type of loan that suppresses their free labor, suffer from the badges and incidents of slavery that the 38th Congress--which enacted the Thirteenth Amendment--and subsequent Supreme Court decisions sought to eliminate. Today's underclass suffers from social and economic conditions that restrict their social and physical mobility, and constrain their economic options and life decisions. These are conditions the Thirteenth Amendment aimed to prevent. While initially passed to end African Slavery in this country, the Thirteenth Amendment is relevant today, as the conditions poor people face do not allow them to be meaningfully free.