The New York Times had an article today covering payday loans, which have replaced credit cards as the most egregious form of legal usury sanctioned int his country (though I am fortunate to live in New York, one of twelve states to ban this sort of chicanery).  Here’s how it works:

For Ms. Truckey, as for most payday borrowers, the loans began as a stopgap. After losing her job in 2002 she borrowed $500 from a payday store, which charged $22 per two weeks for every $100 borrowed, or the equivalent of 572 percent annual interest. When the loan came due in two weeks, she could repay only the $110 finance charge, so she rolled the loan over, adding another finance charge.

That’s right, 572%! That’s  more than twenty-five times the already-ridiculous rate your credit card company is charging you – and at least they offer you a grace period of a few weeks before the interest kicks in. But wait, all hope is not lost – there’s a company taht’s trying to make it better:

At GoodMoney, tellers encourage borrowers to consolidate their debt in lower-interest term loans, and to use other credit union services like automatic savings. If borrowers cannot repay a loan after rolling it over twice, they can get the loan interest-free by attending a free credit counseling session with a nonprofit service.

What a relief. I wonder what the kind folks at GoodMoney charge for a lone. They seem so understanding, so helpful, so in touch with the needs of the community. Let’s find out.

But alternative payday loans have also drawn criticism from some consumer advocates, who say the programs are too similar to for-profit payday loans, especially when they call for the principal to be repaid in two weeks. At GoodMoney, for example, borrowers pay $9.90 for every $100 they borrow, which translates to an annual rate of 252 percent.

Holy Mackerel! What a business! I wonder how much of that 252% interest they actually manage to take home. According to Ken Eiden, president of Prospera Credit Union, the folks behind the GoodMoney program (along with Goodwill), almost half goes to writing off bad loans. Which leaves a whopping 126%, that Mr. Eiden claims goes to database and administrative services. The GoodMoney program is supposedly non-profit, which leaves me wondering where all the money is goign. Credit card companies and banks don’t gross a fifth of the 125% that GoodMoney nets, and since banks and credit card issuers do run credit checks and do verify income, they presumably have more overhead than GoodMoney. Something doesn’t smell right to me.

One things is for certain, and it’s that America is drunk on credit. On the one hand, access to credit markets is a tremendous boon. It allows businesses to open and expand, enables families to purchase homes and cars, and empowers cities, states, and nations to meet unexpected needs. However, as many before me have analogized, debt is slavery. Owing money controls your choices, limits your freedom, and constricts your personal autonomy and dignity.

We all know by now of the predations of the credit card industry, with their outrageous interest rates, hidden fees, double-cycle billing, incomprehensible terms and conditions, and policies designed to keep customers in debt forever. We’ve recently learned about similarly deplorable conditions in the education loan market, where complicit colleges have turned their campuses into private game reserves for unscrupulous lenders (though, as GoodMoney demonstrates, I’m not even sure what a scrupulous lender looks like anymore, or even if one exists).  And you’d have to be off at some kind of foreign military quagmire not to have heard about the orgy of delusional lending and borrowing that has led to a major crisis in the international credit markets.

And that’s what’s so infuriating. When the ordinary borrower is finally drowned in that vicious whirlpool of fees, penalties, and astronomical interest rates, there’s nothing to be done. Even bankruptcy no longer offers a new start. But when banks and hedge funds get burned while speculating with borrowed money, in comes the Fed, offering billions of dollars in loans at below-market rates. All you have to do is pull up to the discount window and take what you need! Bailouts for everyone! This isn’t capitalism – you know, the kind where the losers of the ferocious competition for fiscal survival get carried out on stretchers – this is socialism for the rich! I don’t see the Fed lending money to people whose adjustable mortgage rates have readjusted three or four points higher.

Maybe the Torah was on to something when it spoke of interest-free loans secured by collateral. Sure, it’s not a away to make money. It’s a form of charity. But isn’t the Fed offering charity right now too? Only they’re offering it to the rich, who, by their own choice, took foolish risks and have now gotten burned. There’s a distinction between those who use credit and those who need credit. For many of us, credit enables prosperity, but for some, credit is a matter of survival. Isn’t it time we started drawing that distinction with a bit more sense, and a bit more humanity?