2009 National Ethnic Media Awards Winners

Do Quy Toan, Viet Tribune, February 22, 2008

In a free economy, laws are written to protect weak people. Laws are created to defend the consumers against the power of the producers, prevent banks from taking advantage of depositors or borrowers, and defend workers against corporate employers. But the laws can't anticipate every concrete situation. Thus "smart" people can know how to gainfully get through the gap of the laws, and the "innocent" or unwise people can be harmed. Every time this happens, legislators or the government have to change or complement the law.

Sharks at payday

In the advanced countries of America and Europe, laws against heavy interest lending have been made centuries ago. "Cut throat" lenders — using Vietnamese terms — or "sharks" in Western parlance, will be punished by the law. Except when there are no complaints, no witnesses at court, because the victims are forced to "happily" pay "cut throat" interests. Within the ethnic communities in the U.S., cut throat lenders operated freely among the Italians in New York, the Poles in Chicago, the Chinese in San Francisco, etc. The new immigrants, who are unfamiliar with banking business, do not speak English to communicate with the Americans, do not understand the law, are very much exploited! These sharks acted entirely outside the law, have no accounting and even do not file tax return! Probably within the Vietnamese immigrant community the problem of shark lending has not yet become an issue, because there are very few Vietnamese illegal immigrants, and also because our people are penny-pinching, very few borrow spending money before getting a salary!

But, even in what is known as the "main stream" in the American society, there are organizations that lend money at rates many times higher than the rates at the banks, and they still operate within the law. Somebody who needs 200 or 500 dollars but can't borrow at commercial banks because of lack of income documents can go to the pawn shop. Pawn shop is a "credit agency" that lends money at interest rates two or three times or higher the interest rates at the banks. Many people, like legal immigrants who do not have bank accounts, when paid by check can go to some shops to cash their check, minus exchange fee. This is also a form of credit, advancing money to customers and cashing their checks later.

Some very special shops lend money in advance, and the borrowers will submit their checks at payday to the lender. The Americans call these shops "payday lenders."The payday lenders do not require the borrower to undergo the credit check. They only require the borrower to have a bank account and show them the previous pay check to make sure the borrower is still employed. The borrower signs check to pay the debt, predates, using the date of the next payday, the day the debt will be paid. The check amount is the amount of the debt plus the fees. In other words, the borrower signs a paper authorizing the lender to automatically withdraw money from his or her bank account without signing another check.

The amount of money to be paid is a problem. To borrow 100 dollars one has to pay from 15 to 30 dollars fee. On payday, if the borrower repays in cash, the lending shop will not use the pre-signed check. But if the borrower cannot pay, he or she can renew or roll over the old debt. For example, the first time borrowing is 100 dollars, lending fee is 15 dollars; at payday 115 dollars will have to be paid. But if because of lack of money, the borrower borrows 115 dollars to pay the debt, the new debt becomes 115 dollars, and the fee increases to 18 dollars. This means at the next payday, the amount to be paid is 118 dollars. In this way, if the debt is renewed every month, at the end of the year the debt will become very big. If the interest is 15% for example and the debt is recalculated every month, at the end of 12 months the debt of 100 dollars borrowed will become 535 dollars. This means the annual interest rate is more than 400 percent.

Servicemen, elders, disabled people

Professor Steven Graves from Cal State University at Northridge has been asked by the U.S. Defense Department to study the problem of shark lending targeting young servicemen. The studies show that the percentage of servicemen caught in the payday lending scheme is three times higher than the civilians. These are young people who lack experience in managing personal budget, spend carelessly, or on the spur of the moment; they are targeted by short-term lenders who are sure to be able to recover the debt. If accused of not being able to pay their debt, the servicemen will be more afflicted than their civilian counterparts; they may be prohibited from frequenting the security areas, or may be tried by military courts in case of serious offenses. Lending to servicemen, including shark lending, is guaranteed the debt will be recovered!

Seamen from naval bases in Northfolk leaving the camps immediately see payday lending shops, pawnshops, shops lending with car as collateral, etc. Four years after Virginia State gave permission to payday lenders to operate, there are up to 700 lending shops of this kind. A seaman who needs 1,600 dollars borrows from 4 different lending shops. On payday, he pays one lender, renews the debts at the other lender shops. After 6 months, his debt amounts to 4,480 dollars.

Since 2000 many banks refused to lend small amounts of money, because these small loans are not worth the time spent to make them. Since then, the payday lending shops have doubled and reached 22,000. Many financial companies are involved in this business, such as Advance America, QC Holdings, Ace Cash Express, Check'nGo, Money Tree, Miracle Finance, etc. Many of these companies have registered on the Stock Exchange.

In addition to servicemen, the other targets payday shops are aiming are retired elderly people, people who receive financial assistance because of disability, and former veterans. These people receive their monthly government checks!

The law prevents the government from sending paychecks, financial assistance, etc., to lending agencies. But the payday shops have used the banks as checks recipients on their behalf.

Previously, most recipients of retirement paychecks can cash them out, without the need to have a bank account. Ten years ago, the Social Security Retirement Agency requested the recipients to have a bank account so that the government can transfer the money directly to their accounts, via the internet, thus saving personnel cost. In 1996 only 58% of retirees or recipients of financial assistance received direct transfer, today this number has increased to 80%. Oliver Hummel in Montana receives 1,013 dollars monthly because of mental illness, the money is transferred directly to the bank. Last year, his car broke down, he had to borrow 200 dollars from a payday shop. When the debt is due, as he does not have enough money, he went to another payday shop to borrow money to pay. At the beginning of this year he has 8 accumulated debts, the interest rate was as high as 180% for one debt, 406% for another.

An 80 years old man in Alabama receives monthly retirement benefit of 565 dollars. In 2002, he needed money, borrowed 200 dollars from Small Loans, a subsidiary of Money Tree Inc. The old man does not read or write, the shop secretary helped him open an interest-free bank account; the account does not allow him to use checks or to withdraw money at ATM. Subsequently, he was helped in preparing paperwork, signed, requested Social Security to transfer the money to a bank in another state, then he signed paper asking to transfer money to the Small Loans shop. Then every month he came to that shop; the shop receives 585 dollars from Social Security, deducts the debt amount, and gave him the remaining. Some months, he gets only 180 dollars! The old man cries and complains: "It is not fair, it is really not just!"

After his mobile home was burnt and he became homeless, social service agents helped relocate him in a senior citizen center, open an account at a nearby bank, and asked Social Security to send money to the new account. When Small Loans sued him for not paying his debt at Talladega Court, Alabama, he was defended by a lawyer free of charge; the judge dismissed the case because the plaintiff representatives did not show up.

Federal law prohibits people from taking retirees or social security checks to pay for the debt. But many people do not know that. The payday shops that do not take social security checks from their victims but use the banks to transfer the money to them also violate the spirit of the law. Many elderly or disabled people do not know all these laws, but the social service agents can help explain these to them and advise them how to protect their rights. There may not be many victims of shark loans within the Vietnamese community; but if there are, it is difficult to know. Because we, Vietnamese, we usually do not want to talk about our financial problems, and we also cover our misfortunes because we fear to lose face.

* * *