Magazine article Tikkun

A Religious Movement to End Predatory Payday Lending

Magazine article Tikkun

A Religious Movement to End Predatory Payday Lending

Article excerpt

In 1999, a catholic priest in Chicago found himself counseling a parishioner who was struggling to stay afloat financially. The parishioner, a mother who worked two jobs, had been paying $120 every two weeks for over a year to service two payday loans. The priest was shocked to learn that the original principal of the loans was only $600. In repayment of that $600, this woman had paid out over $2,000-over 500 percent in annual interest-and was still paying.

The priest, Monsignor John Egan, helped his parishioner pay off the loans and the interest-and then helped catalyze a community-wide effort to fight unscrupulous and predatory lending. After his death in 2001, the coalition he assembled named itself the Monsignor John Egan Campaign for Payday Loan Reform and became one of the country's first faith-based coalitions to combat predatory payday lending. Since then, faith leaders have gathered in nearly every state affected by payday lending to call for an end to these predatory loans and the damage they inflict on families and communities. Over the past fifteen years, clergy have forged uncommon partnerships grounded in shared biblical principles. In an effort to protect financially vulnerable households, clergy have taken to the streets, collected signatures for ballots, lobbied state legislatures, raised funds to help families get out from under predatory loans, and prayed in front of payday shops.

Now, in this biblical year of release from debts, a drumbeat is building across the country. In church basements and large urban synagogues, people of faith and goodwill are joining their voices in a unified call for national regulation to stop the payday debt trap.

Understanding the Rapidly Expanding Payday Loan Industry

Lending as a tool of exploitation is nothing new. In America, predatory lending practices have flourished at various points in our history, from sharecropping contracts of the post-Reconstruction era to the "loan sharks" and the "salary lenders" of the early 1900s who enticed workers into expensive debt.

Over the last twenty years, the payday lending industry has expanded exponentially. During the 1990s, the number of payday lending storefronts exploded, growing from less than 200 to over 22,000, located in urban strip malls and on rural roads across the country.

Advertised as a trustworthy and simple solution for borrowers facing a cash crunch, payday loans are actually structured to create a debt trap: many borrowers find it nearly impossible to repay the loan. Not only are the interest rates astronomical-300 percent interest and higher-but the interest and loan principal are also structured to make repayment difficult for borrowers; they are due at the same time, often very soon after the loan is received. As a result, many payday borrowers find themselves taking out another payday loan soon after repaying the previous one, thus digging themselves deeper in debt.

Payday lenders make no attempt to determine whether borrowers can actually repay their loans without reborrowing. Rather than underwriting their loans and profiting when borrowers repay on time, payday lenders benefit when borrowers fail and are forced to take out multiple loans. Each year, payday storefronts issue an estimated $27 billion in loans; 90 percent of this business is generated by borrowers who take out five or more loans per year.

The modern payday lending industry was born in the 1980s and 1990s, when industry lobbyists carved out loopholes in states' traditional usury and small loan laws. Historically, these laws typically set interest rates for small loans at about 36 percent annual interest. As legislative loopholes proliferated, so did payday lenders who took advantage of their legal license to charge upwards of300 and 400 percent annual interest.

The Religious Roots of Just Lending

Religious communities have emerged as some of the strongest critics of predatory payday lending, for reasons rooted in their day-to-day experience and historic teachings. …

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