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Time to pull the sharks' teeth

Payday lenders are a scourge on Georgia's desperate citizens


Jimmy Donofrio was a bona fide, straight-out-of-the-pages-of-the-Godfather loan shark, a lieutenant in the Trafficante crime family. From his base in Tampa, Donofrio's don, Santos Trafficante, for years ran rackets -- prostitution, drugs and, notably, loan sharking -- in Phenix City, Ala., a town renowned for its lawlessness. The mob's primary "clients" were the soldiers across the Chattahoochee River at Fort Benning, Ga.

Donofrio died two years ago at age 90, and the last time I saw him he was senile, drooling on his tie, hardly a good image for a La Cosa Nostra capo. But in his heyday, he garnered fame for collection methods his critics (the FBI, for a start) groused were a little over the top: When people didn't pay, he threatened to castrate them or break their legs.

The deputy don also had a way of connecting with important people -- cops, mayors and judges all (curiously) thought Donofrio was a nice guy, and the former head of the community college in Tampa worked for the shark as a bagman. If you didn't pony up the cash to the educator, you got some schooling via smashed kneecaps or an irreversible and overdone switchblade-executed vasectomy.

When I ran into him at a political party a decade ago, Donofrio said all he did was provide a "little service."

I was thinking about him as I watched a public hearing at the state Capitol last week. The subject was loan sharking, aka "payday lending," or as it is known among the stylishly tailored bankers who covertly fund the sleazy storefront operations, "wage buying." It is often nothing more than wage stealing.

Among the legislators, many are already owned by the lenders. As with Donofrio, the payday lenders know the value of powerful friends. Former Speaker Tom Murphy for decades fronted for those who targeted the poor with high-interest loans. Murphy happily gutted any attempt at regulation, resulting in Georgia scoring the highest interest rates in the nation, 900 percent and more, on "legal" loans. Sen. Don Cheeks, R-Augusta, who is pushing legislation that would put payday lenders out of business, says the industry sleazoids tried to bribe him by offering him double market rates for storefront space he owns.

"The history of payday lending in Georgia is a history of fraud and calculated disobedience of the law," state Senior Assistant Attorney General Sidney Barrett wrote in a brief for litigation against some lenders. Barrett and other critics say the lenders, when nailed by law enforcement, simply shut down and reopen under different names. Enforcement, much less serious penalties, is impossible under current laws.

Still, there's an argument for payday lending. It's a good one -- just not, to my mind, good enough. I often engage, as many people do, in a form of payday lending called overdraft protection. I keep enough in savings so that I don't pay a fee when my bank covers a vulcanized check. Even if, as has happened, the savings level drops and I pay a $5 fee to fund a big check that otherwise would have bounced, it's a good deal.

But many people don't have savings, don't have or can't get a good credit rating -- and they're screwed. If your Georgia Power bill is overdue, and you don't want your kids to face Christmas in a dark and cold house, and you're a jobless victim of Bush's economic "recovery," and your checking account is down to $2, what are you going to do? If you bounce a check, the charges from the bank and the utility company could easily total more than the bill you're paying. Or you could go to a payday lender, get $100 and, in two weeks, pay back $125.

"What do you think is the better deal?" asks Jerry Robinson, managing director of the Atlanta office of Stephens Inc., a national investment banking firm that's very gung-ho on payday lending. "Yes, the product is expensive. But it's not as expensive as many of the alternatives."

Robinson describes, as Donofrio did, astronomically high-interest loans as a "service." And in this debate -- which will hit the Georgia Assembly next month in Cheeks' Senate Bill 157 -- the devil is in the distinctions between various forms of loan sharking. When is a "little service" a life buoy on a stormy sea, and when is it bait to lure people into a downward spiral of penury? The proposed legislation would draw the line -- effectively banning payday lending and making repeat offenses felonies.

People on the financial fringes need to have access to money. These are the folks who don't have overdraft protection. Their credit cards are perpetually maxed out, and they're already paying the card companies usurious 20 percent-plus interest rates. They are, as Robinson noted, high-risk borrowers, whether through their own neglect or because of calamities beyond their control.

But what goes on in this state isn't really help for the downtrodden. It's just a variation on Donofrio's version of "service." Payday lending already is illegal in Georgia -- but the laws aren't enforced. It preys on the desperate, including, as the mob did at Fort Benning, financially stressed members of the military; two dozen payday lenders huddle at the south gate of Fort Stewart. And, while broken legs may not be a fashionable collection technique any longer, intimidation and the old loan-sharking game of stacking high interest on top of high interest are common tools of the trade.

Payday lending is big business, and Georgia's leaders find any bidness, no matter how repugnant, irresistible. According to the Stephens Inc. analysis, there were 15,000 licensed payday lending stores nationwide in 2002 (no one is counting the unlicensed predators), a 50 percent increase from 2000. Nine million to 14 million households are forced to use the lending "services," and the typical borrower gets seven loans a year.

The industry generates as much as $4.3 billion in annual fees.

Former Gov. Roy Barnes pointed out to me in a recent interview that Georgia has the weakest consumer protection laws in the nation. It's no surprise then that the state's payday lenders flock and thrive here.

The victims are Joe Six Pack and Matilda Mom. I sat in my car in front of Money til Payday on Memorial Drive near the Perimeter last week watching customers come and go. They weren't society's dregs -- you've got to have a job and a checking account, even if it's an anemic one, to get a payday loan.

Put another way, there has to be some fat left on the bones to assuage the shark's hunger.

I saw two women and a man go into the storefront. They looked like your neighbors, neither poor nor un-poor. Interestingly, all three cast furtive looks over their shoulders as they entered Money til Payday -- the victims were ashamed of their victimhood.

Robinson, of Stephens Inc., wrote a study three months ago that reported the average payday loan customer is female (60 percent), rents her home (56 percent), has at least one child (61 percent) and has been working at a steady job for more than a year (74 percent).

In other words, meet Pam Allen, 49 years old, mom to four kids, a bank employee who is married to a city of Atlanta electrician.

"I had two children in college at the time," Allen recalls. "I just couldn't make ends meet. You know how it is. So I borrowed $300" at 700-plus percent annual rates that would make even Donofrio blush with shame. Unable to pay within the two-week loan period, Allen says she became a "rat on a treadmill. I wish I had never seen the payday lender's place." Ultimately, Allen paid almost $2,000 for the $300 she borrowed.

For the military, the costs are multiple. The government pays about $3,000 to do the investigation needed to give a soldier a security clearance. Bad debts make a soldier vulnerable to blackmail -- and are often grounds to revoke a clearance. Also, chronic indebtedness can end with a GI getting the boot from the service -- with the loss of taxpayer-paid-for training. So, payday and other predatory lending may cost us some or all of the state's 13 military bases with their $5.3 billion payroll.

One constituency that hasn't been heard from is the religious community. I'd think Georgia's abundance of fundamentalist preachers would condemn payday lenders. After all, among those same passages of biblical admonitions that the ministers love to quote when, say, condemning gays or touting the Ten Commandments, we find it written in Ezekiel:

"Hath given forth upon usury, and hath taken increase: Shall he then live? He shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him."

I doubt the Georgia Assembly will be that tough, but it should.

Senior Editor John Sugg says, "Maybe Shirley Franklin could find a payday lender to fund Atlanta's sewer repairs. Heck, the interest rates the bum-credit city now gets aren't much lower than the sharks charge." Sugg can be reached at 404-614-1241 or at john.sugg@

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