Payday loan laws must be reformed

I collaborated with Rabbi Barbara Block, Rev. Michael Overton, and Rev. Mark Struckhoff for this piece in today’s News-Leader.

————

On the pages of the News-Leader, readers frequently find clergy from across the religious spectrum expressing a wide range of differing opinions on a number of hotly-contested issues. Yet when it comes to predatory payday lending practices — which at their very core exist and thrive on a person’s misfortune — a vast and ever-growing number of clergy in the Springfield area stand united for reform.

Given the fact that the Bible contains over 2,000 verses related to economic dignity, it shouldn’t be surprising to see so many religious leaders stand united. After all, the Bible consistently condemns usury and teaches us to love our neighbors rather than exploit their financial vulnerability for selfish, unscrupulous gain.

Parasitic predatory lending practices use 400 percent interest rates to intentionally trap struggling families in debt. Clearly, the American public understands that 400 percent interest is wrong and immoral — as evidenced by the unique coalition of faith organizations and community leaders coming together to seek an end to the payday loan debt trap.

Many clergy are taking a lead on this initiative because we’ve seen the way predatory payday lending (which is better understood as legalized loan sharking) has decimated the lives of some of our beloved parishioners and friends. Predatory lending practices take advantage of people who find themselves with their backs up against the wall. What’s worse, payday lending companies want people to find themselves in desperate situations, which is actually the inverse of the Golden Rule. Instead of treating others the way you would like to be treated, predatory lending practices are forged in the hopes that others are treated exactly how you do not want to be treated.

This simply isn’t right. Anytime the most vulnerable members of society are taken advantage of, people of faith are called to stand in the gap — to do something about it — in order for love and fairness to be the measure of society, as opposed to exploitation and greed.

We are grateful for the many people in our community working toward true reform, including representatives from local banks and credit unions actively trying to figure out ways to provide small loans at a fair rate to those in need, so that a viable alternative to predatory lending might become available. This way, for example, if a person’s brakes go out and they don’t want to miss work, they’ll have the option of seeking a loan from a reputable, integrity-driven lender that helps them stay on their feet, as opposed to a payday lending company that is rooting for their financial ruin.

Since Missouri is among the states that have the most outrageous payday lending laws in the nation, we hope you’ll add your voice to the growing chorus of citizens seeking true lending reform. If you’d like to be involved in this work, you can connect with Faith Voices of Southwest Missouri — an organization constantly striving to work toward the economic dignity of all Missourians — via Facebook, Twitter, or email (@faithvoicesswmo; faithvoicesswmo@gmail.com).

Rabbi Barbara Block, Rabbi, Temple Israel; Rev. Michael Overton, Senior Minister, First Baptist Church; Rev. Phil Snider, Senior Minister, Brentwood Christian Church; Rev. Mark Struckhoff, Board Member, Missouri Faith Voices

4 Comments

Filed under Uncategorized

4 responses to “Payday loan laws must be reformed

  1. Steve Christiansen

    I agree that these loans are morally unconscionable. However, before I agree to nail these companies “to the cross”, tell me their profit margins, loan default rates, etc. Before I know whether they are charging too much for their loans , I need to know how their business works and their margins. It is clear that they are providing a needed service or they would not exist. It is foolish to believe someone borrowing from them doesn’t realize that it is a loan and that there are fees and interest charges. Surely you aren’t charging the companies with fraud? Saying something is just wrong without a fuller understanding of why they exist and function the way they do is short sighted. Saying that other states have done more to regulate them is just saying you think its wrong but you haven’t done your homework to find out the facts. I don’t know the facts and since you did not make a reasoned argument for regulating these companies but rather an emotional one, I assume you don’t know the facts of these business’s either. If you know where I can find out the facts about this scourge, please let me know. I will be pleased to hunt them down and present my findings to you. I just don’t want to accuse them of being thieves unless I have some data to support my belief.

  2. Phil Snider

    Lots of research has gone into this position — including but not limited to analysis between various regulations in other states, default rates, risk to lender, etc. I do agree that an alternative needs to be made possible, hence the reason we commended the local bankers and credit unions for trying to find one. Of note is that lenders on these small loans still make money the vast majority of time when people default on them. Now, whether or not a small lender can sustain such default rates, I do not know.

    Overviews:

    http://www.ibtimes.com/payday-loans-study-highlights-default-rates-overdrafts-groups-debate-cfpb-regulations-1864480

    http://www.pewtrusts.org/en/research-and-analysis/collections/2014/12/payday-lending-in-america

    http://www.pewtrusts.org/en/multimedia/data-visualizations/2012/payday-lending-in-america

    http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2014/04/10/how-state-rate-limits-affect-payday-loan-prices

    http://www.pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why

    http://www.pewtrusts.org/en/projects/small-dollar-loans-research-project

    Extensive Index: http://www.pewtrusts.org/en/projects/small-dollar-loans-research-project/research-and-analysis

  3. Steve Christiansen

    Ah, sanity at last. I have spent several hours reading the references you supplied and seeking their references in a effort to understand what is going on. This is how I see the “payday loan” issue.
    1) There is a legitimate need for these small loans to exist(12M loans a year made)
    2) They are very high risk loans(25% default at 1 month, 33%at 6 months and 45% at 12 months)
    3)Most loans are used to cover every day expenses, not emergencies.
    4)On average, a lender looses 10% of the initial loan on loans that go into default.
    5)65% of loans that go into default are eventually paid off.
    6)OF the 12M loans yearly, average borrowed is $375 and average payback is $895.(Pew) while “a typical $300 loan becomes $466 by the time it is paid off(Center for responsible lending)?
    7)In the 18 states that prohibit interest > 36%, there is no payday lending
    8) Most states allow 10-20%/month on these loans
    9)In addition to paying payday loans, most borrowers are paying overdraft fees at banks
    10)Colorado has instituted a law that limits interest rates to 45%/year plus a 7.5% maintenance fee and also requires payments be scheduled over 6 months. . This caused 1/2 of all of their payday loan companies to close . The half remaining picked up the demand.
    11) Missouri allows a $75 dollar finance charge per loan( loans are 1 month loans) + interest not to exceed 1950%/year.

    In a sense, the experiment has been done. No one is willing to lend to these people at 36% a year. In Colorado, they are close to the point where lending is no longer profitable but not so close that it won’t be done. Missouri is a rip off and something needs to be done. We could use the Colorado model, accept capitalism, and feel we had done our Christian duty to stop abuses of the poor. Or, we could rethink our banking laws and allow bankers to charge enough to justify making these loans. Or, we could pool our money to use in making these small liquidity loans to poor people instead of giving our money to them in the various forms we now employ. Sure, we would loose money on the deal unless we were willing to charge around 45% interest but we would be starting a bank like organization that could also service these peoples needs that are not being meet by our present banking system. Try living w/o a checking account(debit card), access to credit, an account to electronically deposit your check to, etc., and then consider the cost of bank fees on overdrafts etc.
    This is a much larger issue than predatory lending. And, I fear we are naively thinking that we can address one wrong and change the ways things are. If we want to change the world, perhaps we should see it as it truly is and start giving the poor a hand up by offering financial services at a price they can afford rather than handing out free food to people who are often overtly obese and feeling like we have accomplished something.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s