Today’s Delaware law holds that usury does not exist, as it places no limit on interest rates placed on loans. Delaware therefore provides a fertile setting for predatory loan practices, particularly for exploiting the working poor when they use payday loans and credit card lenders. In a recent case, Delaware Judge J. Travis Laster deemed payday loans with interest rates of 800 percent as “unconscionable, unfair and wrong.”
The May 6 Cape Gazette editorial concluded that rather than legislating a cap, as proposed by banker Alex Pires, Delaware should deal with usury by educating the public on loan contracts. The editorial, while noting Judge Laster’s judgment on “unconscionable” rates, still took the position that Delaware not enact a cap on interest rates, feeling that an interest cap would endanger its “business friendly” image.
Being “business friendly” has its pros and cons. It was a business friendly decision by the framers of our Constitution to not deal with slavery, and we are still suffering the consequences of that colossal moral failure.
The market for lending differs vastly for borrowers depending on their wealth. Even tyrants and monarchs of the pre-Christian era recognized this and imposed usury laws to protect poor borrowers from greedy wealthy lenders.
They acted as Lincoln said governments should, doing things for the people that they couldn’t do for themselves. They used the power and force of the state to protect the vulnerable. Interestingly, the only time Jesus uses force is when he drives out of the temple the merchants who were exploiting the poor. He doesn’t reason with them, for he knows they are aware of their wrongdoing.
Will consumer education alone end unfair practices in the loan market? Borrowers’ knowledge of the intricacies of the financial market will not protect them from the exigencies of life which create the pressing need for loans - medical expenses, or repairing or replacing cars. Lenders without scruples, aware of these pressures and vulnerabilities, will take advantage of borrowers. The working poor aren’t deemed creditworthy by conventional lenders, and only have access to high-interest loans. With no limit on the interest rate we are practically assured that exploitation of the vulnerable will occur, driving more Delawareans into poverty. Consumer education may be necessary but is far from sufficient to deal with Delaware’s unconscionable lending practices.
How big is the vulnerability to usury issue? We know that the poorer people get, the more vulnerable they are to predatory lending practices. We have a growing income gap with an ever-shrinking middle class and a growing working poor. A 2013 Federal Reserve survey asked people how they would meet an emergency need for $400. Some 47 percent of adults answered they would have to borrow or sell something to come up with $400. Other surveys confirm that about one half of all households are living paycheck to paycheck.
Delaware is morally obligated to enact legislation to place a cap on loan interest and provide arrangements for protecting consumer rights in the financial services market. If you agree, please let our elected officials know.
William F. O’Connor
Lewes
-
A letter to the editor expresses a reader's opinion and, as such, is not reflective of the editorial opinions of this newspaper.
To submit a letter to the editor for publishing, send an email to viewpoints@capegazette.com. All letters are considered at the discretion of the newsroom and published as space allows. Due to the large volume of submissions, we cannot acknowledge receipt of each submission. Letters must include a phone number and address for verification. Keep letters to 400 words or fewer. We reserve the right to edit for content or length. Letters should be responsive to issues addressed in the Cape Gazette rather than content from other publications or media. Letters should focus on local issues, not national topics or personalities. Only one letter per author will be published every 30 days regarding a particular topic. Authors may submit a second letter within that time period if it pertains to a different issue. Letters may not be critical of personalities or specific businesses. Criticism of public figures is permissible. Endorsement letters for political candidates are no longer accepted. Letters must be the author’s original work, and may not be generated by artificial intelligence tools. Templates, form letters and letters containing language similar to other submissions will not be published.
