Payday Peonage: Thirteenth Amendment Implications In Payday Lending

During the recent economic downturn, payday lenders’ business and profits have soared while traditional banks have tightened up their lending practices and experienced plummeting stock values. Payday lenders thrive in depressed economic climates. They do so by making short term, high interest loans to the underclass, generally the poor in urban and immigrant communities who need money to meet basic needs and who are without the sophistication to properly assess the risks of payday loans. Members of the underclass, therefore, are especially vulnerable to and ideal targets for predatory practices and exploitive loans. As the underclass, almost by definition, do not have the resources to pay back payday loans, they must “rollover” the loans and must eventually owe exponentially more than the terms of their original loan. In effect, payday loans enrich lenders while perpetuating the limited economic and social position of the underclass. As a result, the payday lending industry must be regulated. This article argues that the Thirteenth Amendment of the United States Constitution – which formally ended slavery – is the proper vehicle for Congress to impose federal usury caps on payday loans. In order to make this case, this Article provides an overview of payday lending practices; describes the underclass; discusses the Thirteenth Amendment, including its ratification, judicial history, and modern development; and then applies the Thirteenth Amendment to payday lending and the underclass. Much has been written on the subject of payday lending practices, notably Professor Nathalie Martin’s work on the predatory nature of payday lenders. Yet, the Thirteenth Amendment implications of payday lending have not been addressed and little has been done to address the conditions faced by the underclass. This paper makes clear that the Thirteenth Amendment is triggered by payday lenders’ targeting of a vulnerable social and economic people and that the Amendment provides an appropriate avenue for regulating this particular industry.