How carefully should public institutions monitor their investment portfolios? Is a payday lender as bad a cigarette company?
These are some of the questions raised by this L.A. Times op-ed about the fact that the University of California's investment portfolio includes the large payday lender ACE Cash Express. U.C. has engaged in socially conscious investing and accordingly has divested itself of coal and tobacco. David Lazarus wants to know why, then, payday lending is OK.
It's a good point. As Lazarus puts it, "The University of California makes money when American workers become trapped in endless cycles of high-interest debt." I might quibble, though, with the article's headline, which makes it sound as if U.C. is putting money directly into ACE: "Why is the UC system investing in a payday lender accused of trapping people in perpetual debt?" the headline. What makes this a somewhat harder question than that is that is does not appear as if UC has consciously chosen to invest in ACE; rather, it is invested in a fund that invests in dozens of businesses. Further, according to a spokesperson quoted in the article, UC is pushing the fund manager to sell off ACE — which sounds like a good first step.
How far we can expect our institutions to go in avoiding investing in companies that harm consumers is a tough question of line-drawing. There are a lot of businesses that behave in an unsavory manner or participate in an unsavory industry. Many credit cards and banks wallop consumers with high interest rates and impose arbitration clauses. Pharmaceutical companies jack up prices of lifesaving drugs. Oil companies contribute to climate change generally and sometimes more immediate horrors. There are plenty of businesses that we call out on this blog for engaging in shady practices, including deceptions big and small.
Still, the fact that we can't expect everything doesn't mean we should expect nothing. This is an important discussion to have.
Ah! Supporting a company which uses the legal method of expressing an Annual Percentage Rate in Lending in accordance with the Truth in Lending Act of 1968. It is the rate for a unit-period multiplied by the number of unit-periods in a year. That method is mathematical UNTRUE … but legal. A typical Payday Loan uses that method of expressing an Annual Percentage Rate on a loan. The pay-day loan rate may have a periodic rate (for the 14 days) as high as 30% in some states. The legal expressing of the APR in that loan is the Nominal APR of 782.14%, calculated (using Excel mathematical symbols) 30*365/14. However, the mathematically-true , compound (^) APR is calculated as ((0.30+1)^(365/14)-1)*100, which equals 93,368.65%. The Act allows an accurate expressing of the (Nominal) APR of 0.25% on large numbers. Does that obfuscation seem fair?