payday lenders, who notoriously charge effective interest rates of up to 400 percent on short-term loans

Dave Zweifel: Payday loan sharks circle the vulnerable | 2/18/2008 1

While our Legislature just can't come to grips with the payday loan phenomenon, which is sucking hundreds of thousands of dollars in interest and penalties from the most financially vulnerable among us, there's yet more evidence of just how sleazily this industry operates.
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The newspaper used as an example a payday loan store in Dotham, Ala., where on a recent morning dozens of elderly and disabled people, some propped on walkers and canes, gathered to get their monthly check, minus the store's cut.

It's illegal, the paper noted, for the government to send a recipient's checks directly to a lender. But the payday loan people are clever. Many have made arrangements with banks where people on Social Security and other benefits have their government checks directly deposited. The banks then immediately transfer those deposits to the lenders, who, in turn, subtract debt payments, fees and interest, before giving the recipients the leftovers, according to the Journal.

Consequently, the payday lenders, who notoriously charge effective interest rates of up to 400 percent on short-term loans, effectively gain control over Social Security recipients' finances.

The Social Security Administration has received numerous complaints about the arrangements that some banks have with the payday lenders, but in what has to be a classic Catch-22, the SSA can't monitor the activity because of privacy rules that prevent the release of financial information. ...