A. Peonage: Economically Trapped & Involuntary Serving Payday Lenders

      While payday lenders are not literally the debtor's employers, their relationship is analogous to the typical employer-employee relationship present in the peonage cases. The Thirteenth Amendment, the Anti-Peonage Act, and multiple judicial decisions guarantee freedom from forced labor to those trapped by indebtedness. The structure of payday loans traps debtors in their indebtedness, forcing them into a cycle of never-ending debt. Payday loans are designed to maintain a borrower until her payday, require the debtor to secure the loan with a post-dated check or debit authorization, and are meant to be paid back in one lump sum when the consumer receives her paycheck. Thus, the debtor is quite literally working off the debt for the payday lenders. Payday loans have a direct relationship to the debtor's labor, and the fruits of her labor. Like the court found in Jaremillo v. Romero, these loans hold a debtor until she fulfills her debt and render her a laborer so long as the debt remains.

      Threats of criminal prosecution for failing to pay back the debt are unconstitutional under the Thirteenth Amendment, yet this does not stop payday lenders. The loan structure, issuing borrowers the loan via a post-dated check, is another tool of coercion. Payday lenders take advantage of the borrower's fears of prosecution and jail by threatening customers with criminal prosecution for writing bad checks. Historically payday lenders threatened to present the wage assignment (now replaced by a post-dated check) to the debtor's employer, who could terminate the debtor. Today, even if payday lenders cannot legally prosecute a borrower, they still “use the criminal justice system as a collection agency.” Payday lenders possess “a strong economic incentive to threaten customers with criminal prosecution. Payday loan customers will do whatever it takes to keep from going to jail; thus, payday lenders are assured of getting paid as long as consumers fear imprisonment.”

      Furthermore, borrowing from payday lenders traps the borrower in a cycle of debt and a coercive labor-for-debt relationship. As Professor Nathalie Martin points out:

       [V]ery few customers can afford to pay back the loans. Rather . . . most customers find it necessary to continue to pay $1000 to borrow $500 for twenty weeks, or to pay $100 in interest every two weeks--for the rest of time--on an original loan of $400.

      Payday loan fees and interest hikes are other tools of coercion. Debtors, worried about mounting interest and the unpaid principals, must work tirelessly just to keep up with payments. The thought of accruing more debt under the terms of the loan is frightening to debtors, as many of them spend their entire paycheck to keep up with the payments.

      Although the initial decision to enter into a payday loan is generally considered to be voluntary, the nature of the subsequent relationship between the lender and the debtor often becomes coercive. As Bailey clarifies, coercion can exist irrespective of whether a loan was entered into voluntarily. Payday lenders often encourage repeat borrowing, and borrowers often feel they must take out additional loans to keep up with payments on a previous loan.

      Furthermore, some payday loans are not even truly voluntary at the outset. Individuals who utilize payday loans are disproportionately a part of the underclass. Professor Randall Kennedy characterizes the consequences of being poor as being particularly vulnerable to “terrors of nature, bad luck and communal failure,” and further argues that people living in poverty turn to financial loans and payday lenders to meet basic survival needs. Under contract law, a person who agrees to take out another loan in order to make an existing loan payment and pay rent is arguably under duress, as he or she is trying to prevent the potentially devastating alternatives to not having that money. The creditor knows the status of the debtor's credit, income, debt, and that the short-term credit product is “harmful if used on a continuing basis.” Payday lenders are indifferent to the dire financial situation of many borrowers, and instead exacerbate such problems by making it next to impossible for borrowers to pay back the loan. In addition, lenders take advantage of borrowers' fears of increased poverty or possible imprisonment by using aggressive and inappropriate collection practices, which encourage debtors to borrow even more.

      This is not unlike the defendants in Mussry who knew that their domestic servants had no other recourse but to work for them. Lenders know that the debtors are desperate, and struggling to stay afloat financially. They use psychological tactics to coerce debtors into thinking that their loans are the only way to stay financially ahead.