Tuesday, October 6, 2015

PayDay Loans : Second Stanza

photo by david ten have / flickr

It happens at my house about three times a week. The phone rings. On the other end a voice exclaims: “You are so lucky! You have been approved for a $500.00 loan.” Calling the number I was told that I could get up to a $1,750.00 loan. I could be approved in less than ten minutes.

Imagine being desperate for money. Imagine having lost your job. Imagine having a wife needing to go to the hospital and you don’t have enough money. Imagine a husband dies and you wonder where the burial expenses will come from. Imagine being a soldier overseas and your car at home has been repossessed. Imagine a divorcee whose husband has not paid what he promised and you and your three children have no money for groceries or rent.

So you receive the phone call I received. Desperate for money for car repairs, utility bills, or money to pay your rent—you give the information over the telephone.The money is electronically deposited in your checking account. You have the money you need. Prayers answered. Not really. Payday loans get a lot of people in trouble. 80 % of these loans will be extended because they could not pay the borrowed money back in two weeks. So they either roll over the loan, refinance or take out another loan with another company. One-third of the $46 billion paid into payday loans annually comes from borrowers who take out as many as 11 loans in one year.  The Center for Responsible Lending has said “most of the business model is based on repeat borrowers.”

Payday loan agencies say that all their customers have to do is read the fine print when they take out a loan. Many do not. Consequently the interest in many cases sky rockets. Typically payday users pay $15.00 for every $100.00 for a two-week loan. That sounds like 15%. Not true. On an annual basis the borrow rate is 391%. The interest rate on a typical credit card is 12 to 30%. 

How does South Carolina fare with this issue? The Aiken Standard reported that in 2014 128,000 citizens took out more than 1 million payday loans in our state. Borrowers collectively paid $60.4 million in fees.  This may sound bad but we have done better than many states. In 2009 the South Carolina state law tightened the rampant abuse in this industry. We have gone from 1100 payday loan offices to over 300 across the state today.

What can be done about this problem that is ruining the lives of so many of our citizens? In 2009 many of our Senators wanted to abolish the industry altogether. The Aiken Standard quotes State Senator Luke Rankin as saying that “Unfortunately, people are paying way too much for credit, and our state is sanctioning it. People are being preyed upon. The profits on this are tremendous.” We need to change this picture.

Payday loan officials say they are providing a service for people that cannot get money from other institutions. This is right. But to charge astronomical interest rates is destructive to people everywhere. Jobs are lost, cars are repossessed, people who cannot pay their rent are left homeless. Some propose a cap of 36% interest for these loans. The Appleseed Legal Justice Center has said that we need to look at better ways to promote affordable credit that doesn’t trap people in debt. 

Almost every religious group teaches that that lending money at exorbitant rates goes counter to everything faith teaches. In a state as religious as South Carolina we need to remember what Jesus said. “Inasmuch as you do it unto the lest of these you do it to me.”  It is not hard to believe what Jesus would say about any state that allows any financial institution to charge its citizens 300-500% interest rates. 

(This article appeared in The Greenville News, (SC) 10-11-15)

photo by Molly Marshall / flickr
--Roger Lovette / rogerlovette.blogsplot.com

1 comment:

  1. Enjoyed your article. My wife volunteers at Triune Mercy in Greenville. We regularly help lower incomes with a car or financing to get a car. One fellow I help was convict of a felony and is paying restitution of $13,000. He pays $300 a month and Greenville County charges him $50 a month. This goes to his probation officer. If you call that "interest", then he is paying 16.7% a month. Which is probably over 300% a year. So they will get you any way they can.