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How the Payday Predator Hides Among Us: The Predatory Nature of the Payday Loan Industry and its Use of Consumer Arbitration to Further Discriminatory Lending Practices
| Content Provider | Semantic Scholar |
|---|---|
| Author | Satz, Michael A. |
| Copyright Year | 2010 |
| Abstract | This Article argues that Payday lending is a predatory lending practice that disproportionately targets minority customers, and that the Payday lending industry utilizes consumer arbitration agreements to further the industry’s discriminatory lending practices. The Article further argues that the protections afforded military members in the FY 2007 Defense Authorization Act should be applied globally in the form of federal legislation. While there is no bright line definition of what constitutes predatory lending, there are certain badges that tend to be present in a predatory lending transaction, which include high interest rates, limited or confusing disclosures, deceptive acts and practices utilized in drawing in would-be customers, and often the targeting of particularly vulnerable classes of persons. The Payday lending industry makes effective use of these predatory practices to target vulnerable classes of customers, particularly targeting African-American and Latino populations, and engages in lending practices that can lead to loans with interest rates in excess of 500%. Concurrent with the rise of the Payday lending industry in the United States, consumer arbitration agreements became popular. These arbitration agreements require consumers with a legal claim against a business to submit that claim to binding, final arbitration. Although arbitrators in such cases are ostensibly supposed to be neutral, recent evidence indicates that such arbitrators favor lenders in consumer disputes and, in addition, the arbitration of consumer disputes is replete with other problems including issues with fairness, financial costs, other transaction costs, and lack of knowledge on the consumer’s part. Payday lenders take advantage of the benefits that consumer arbitration offers to repeat business players to shield their predatory actions from the public eye, thereby lessening the chance that a state or federal regulatory authority will learn of these actions and consequently take regulatory action or steps in civil court to curb the questionable conduct. Likewise, when dealing with individual consumers, the arbitration agreements tend to dissuade consumers from pressing a claim, prevent consumers with similar claims from learning about previous cases, and prevent consumers from joining forces as members of a class in a class action law suit. Because one of the predicates of the Payday lending industry is predatory lending that targets minority customers, the use of arbitration agreements to shield the industry from liability and accountability make these arbitration agreements effective tools that allow the Payday lending industry to further propagate its discriminatory lending practices. This Article concludes with a call for a ban of the use of arbitration agreements in the Payday lending field, and further seeks more equitable and representative drafting and application of legislation to protect all constituencies from predatory lending practices. |
| File Format | PDF HTM / HTML |
| DOI | 10.2139/ssrn.1687404 |
| Alternate Webpage(s) | https://works.bepress.com/michael_satz/1/download/ |
| Alternate Webpage(s) | https://doi.org/10.2139/ssrn.1687404 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
