Predatory Influence: Understanding the Political Advantage of Payday Lenders

• In Event: Wealth, Business, and Political Power

Abstract

Why have consumer advocates and their allies found it so difficult to reform the policies governing payday and other high-cost lenders--broadly referred to as fringe credit--despite public distaste for these lenders’ business practices? After widespread legalization of these credit products in the 1990s and early 2000s, the status quo has seen little rollback, despite concerted efforts on the part of national and state consumer groups, and even after the 2008 subprime crisis raised the public salience of predatory lending. A dominant explanation is that business groups generally enjoy greater organizational resources, such as lobbying staff and policy strategy, relative to consumer groups, and they wield this resource advantage to maintain inequitable status quos (Culpepper 2011; Hacker and Pierson 2002; Hertel-Fernandez 2019). Complementary work on the representation of marginalized communities—and disadvantaged subgroups within those communities—points out that issues impacting these groups rarely receive sufficient resources from advocacy groups or political representatives to effectively challenge organized interests (Baumgartner et al. 2011; Cohen 1999; Strolovitch 2007). Taken together, these narratives suggest that the balance of organizational resources should explain patterns of change in fringe credit policy. However, a closer look at past reform attempts suggests a puzzling trend. For instance, South Dakota and Montana have both successfully banned payday lending, while California, with significantly more well-resourced consumer coalitions and progressive political power in the legislature, has not.

I argue that the mobilization of organizational resources is not a significant predictor of legislative success for reform advocates. Industries such as the fringe credit industry succeed not because of organizational resources, but because of what I term predatory influence. Businesses engaged in predation do not need to exert themselves financially or strategically in order to be politically successful because of the political marginalization and economic vulnerability of the consumers that require their services, even at exploitative terms. The lack of accessible alternatives to these services limits consumers' propensity to organize against these industries and allows industry actors to frame consumer advocacy campaigns as a restriction of access for consumers, limiting legislative support. Additionally, the political marginalization of consumers--who are disproportionately Black and low-income--limits the number of political representatives for whom this issue is salient. Using an original longitudinal dataset of payday, auto-title, and installment lending statutes across all 50 states and spanning nearly 30 years, I find support for the claim that policy reform is largely uncorrelated with organizational resources, such as Democratic power in government, legislative professionalism, and the number of reform bills introduced. These findings highlight the distinct placement and function of predatory industries in the contemporary U.S. political economy – including fringe lenders, but also for-profit colleges, bail bond companies, multi-level marketing corporations, and addiction treatment centers. A key takeaway from this research is that the most effective routes to dismantling predatory industries are those that target consumer vulnerability directly, rather than bolstering progressive lobbying capacity to further regulate these markets.

Author

• Rhea Myerscough, University of California, Berkeley