Photograph Source: Steve Snodgrass – CC BY 2.0
Predatory lending is an easily overlooked business that has damaged communities of color and poorer people for decades. It traps borrowers in never-ending cycles of debt with high-interest loans on coercive terms. But when Wall Street private equity gets in on the predatory lending industry, it amplifies the magnitude of financial exploitation.
Private equity, put simply, is supercharging the payday and predatory lending industries as it does in any other industry. Private equity has the money — big money — to buy control of lenders and reach more people with greater levels of abuse than they could before. That means more of the infamous debt traps that characterize predatory lending.
Over the last decade, private equity brought additional financial resources, and in some cases, a new level of sophistication, to the subprime lenders they acquired, often enabling the payday and installment lenders they acquire to buy competitors. Only a few months ago, private equity firm Park Cities Asset Management took control of Elevate Credit.
Elevate is a notorious predatory lender. “Elevate raked in over a half billion dollars in 2013 alone. And they showered over $210,000 of that cash on federal lobbyists to attempt to hinder regulations of the payday loan industry,” according to the website Payday Lending Facts. In August 2022, a federal judge in Virginia gave final approval to a settlement involving Elevate Credit, where the company agreed to pay $33 million to resolve litigation related to a predecessor company’s dealing with various tribes.
Private equity firms own more than 5,000 payday lending stores in America and provide capital for several startups’ online payday loans, a 2017 report from Americans for Financial Reform showed. The predatory lender, Mariner Finance, had only 57 branches in seven states in 2013. It now has roughly 480 branches in 22 states, nearly a decade after the Wall Street private equity firm Warburg Pincus – headed by former U.S. Treasury Secretary Tim Geithner – acquired it. In addition to that financial power, private equity has access to bond markets to fuel its expansion.
Private equity firms Diamond Castle Holdings and Golden Gate Capital mergedChecksmart Financial and California Check Cashing Stores into Community Choice Financial in 2011, and over the years, acquired or rolled up other companies like CURO and Direct Financial Solutions to build what is now a network of nearly 500 locations nationwide.
Predatory lenders owned by private equity firms create incentives for their employees to mislead consumers on loan requirements. Private equity firms often pressure employees at predatory lenders they own to sell what are known as “add-on products.” For example, a lender may insert credit insurance on auto or personal loans or try to add high service fees.
