PayDay Loans--Ripping Off the Least of These

"Divide the world into 'mine' and 'not mine' and unreal standards are set up: claims and cravings begin to fret the mind. We are slaves of our own property. We drag with us not a treasure, but a chain."
    --Evelyn Underhill
            
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"We are a country run by the rich, for the rich."
      --Financial blogger,  Felix Salmon

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"If there is among you anyone in need, a member of your community in any of your towns within the land that the Lord your God is giving you, do not be hard-hearted or tight-fisted toward your needy neighbor. You should rather open your hand, willingly lending enough to meet the need, whatever it may be."
      -- Deuteronomy 15.7-8

One of my most painful memories as a child was waking up to hear beating on our front door. It went on and on. Finally, my Father answered the door. The man on the other side started yelling. He called my Father terrible names. “When are you gonna pay this loan off? You owe me money. If you don’t pay soon I’m going to garnishee your wages or take you to court. You got that?” The door closed and there was silence.  My father gambled sometimes across the river in Phenix City, Alabama. He won just enough to keep him coming back. And then he lost and lost. He was over his head. And the interest kept multiplying. Only when a relative reluctantly came to his rescue was the problem resolved. But I remember the stooped shoulders and the shame in my father’s face.

Is it any wonder that my blood pressure goes up when I see sign after sign reading: Pay-Day Loans. They often promise quick money without credit checks. Many of these loans are easy to negotiate online. Some say no interest for the first thirty days. Pay Day Loans began to crop up in the 1990’s. Since then the payday lending industry has over 22,000 locations which loan out an estimated $27 billion dollars annually.

These loans do provide a service for people who need cash fast when their paychecks don’t stretch to the end of the week or month. In this hard time of economic downturn many Americans are turning to these institutions for help. The lenders say they are providing a service to the elderly and the working poor by lending to high-risk borrowers who might otherwise be unable to obtain a loan.

Then what is wrong with these loans? The problem comes that most of these folk have little or no savings. They fall behind on their payments and become victim to unbelievably high interest rates.  Many of them have failed to read the small print. The average borrower will pay $475.73 in finance charges to borrow $366.94 in less than 4 and half months. If this is stretched out the way the payday loan debt compounds, the average borrower will incur $2,492 in debt in a single year. Horror stories abound. A retired military veteran in Texas took out a $4,000 against his pickup truck to help his daughter get started into adulthood. The penalty for not paying off that loan on time was $1200 a month which did not reduce the principle on the loan. This man could pay $1200 a month forever and never pay off this loan.

A 39 year-old mother of five who works as a restaurant cashier borrowed $200.00 recently when she could not pay her electric bill. It took her six months to repay the $200.00 and by then she had accrued $510.00 in interest and fees. This story could be repeated again and again.

62% of the loans issued by these companies will be refinanced. The yearly interest rate (APR) for a conventional loan is 6.5%. Credit card rate is approximately 19%. The Payday Loan yearly interest is 343.41% in interest alone. A former New Jersey Secretary of State DeForest Soaries recently said that he was outraged that payday loan stores offer quick money to people desperate to cover expenses. He observed that “It’s cheaper to borrow money from the Mafia than it is payday loan stores. At least the Mafia will tell you the truth—that if you don’t pay...they’ll kill you.”

Yellow Pages report that there are at least 133 of these lending companies in Greenville. The Department of Consumer Affairs in South Carolina reports that we have hundreds of payday borrowing places in the State. I asked one of the leaders there if there were many complaints from these payday loans. She laughed and said you have no idea.

The Bible and the Qu’ran and almost all religious groups speak strongly against greed and the practice of making unethical or immoral monetary loans. Lending money, particularly to those who can least afford it, at exorbitant rates goes counter to everything Jesus ever taught. Yet little has been done to change these .

practices. Predatory lenders spend millions of dollars to lobbyists to make sure they can continue to operate

Some efforts have been made to rectify these dishonest practices. Congress, responding to complaints that military personnel were targets of predatory lenders imposed a limit of 36% annual interest of loans to military families. But this new law has little impact on all the other folk caught in a bind.

What can we do? Marv Knox, Editor of The Baptist Standard offers some positive suggestions. Some of these lending institutions are reliable--many are not. Check carefully. Legislators and other citizens can document the facts concerning the harm done by these exorbitant lending practices. Lawmakers need to be aware of the harm done in their districts by these unfair practices. Several states, town and counties have already enacted ordinances and laws that curtail payday lending. Jesus did say that inasmuch as do it unto the least of these--we do it unto him. Reckon this has anything to do with 300-500% interest rates?

(Want to know more about this problem--propublica.org deals with this problem; also see reponsiblelending.org; www.apbnews.com/archives/item/6949)