Rent is due a day from now. Your bank account is low, and you worry about bouncing another check. Figuring out how to get the rent paid is all you can think about. Meanwhile, an ad flashes on TV: Hundred dollar bills waving and the announcer promising cash right away with a payday loan. A solution! Or is it?
Across the country, payday and auto title lenders market themselves as a quick fix for families strapped for cash. They sound enticing but ultimately come with severe consequences. The cost of a typical payday loan often exceeds 300% APR. The steep price tag is just the beginning.
Most payday loans are due in full – principal and fees – on the borrower’s next payday. To get a loan, payday lenders require borrowers to write a check dated for their next payday or provide them with access to their bank account. Obtaining an auto title loan requires handing over the title to one’s car which gives the lender the ability to repossess as soon as the customer gets behind.
Once the payday lender has the power to reach into customers’ bank accounts or repossess their cars, they become the “first in line” creditor, the one who can demand payment before anyone else can – before groceries are on the table or the next rent payment is due. When customers can’t repay the whole loan in full, payday lenders encourage them to come back and take out another.
Reverend Dr. Chad Chaddick of Northeast Baptist Church in San Antonio tells the story of one congregant who came to him for help, “The family could live within their means except for one debt dragging them down – a $700 payday loan. Since then, $200 had been deducted from the husband’s paycheck every two weeks. That $200 did nothing to reduce the loan’s principal. In four months, the family had paid $1800. Our church stepped in but ultimately had to pay $1500 to pay off the loan.”
The data on payday lending nationally tells the same story. According to the Consumer Financial Protection Bureau, the typical payday loan borrower takes out 10 or more loans in a year, paying more in fees than the original loan principal.
When Dr. Chaddick first encountered the family struggling under the weight of payday debt, his first thought was, “This can’t be legal!” Unfortunately, triple-digit interest payday lending is legal in over 30 states, and the industry has become quite skilled at evading and finding loopholes in the law.
The payday lending industry makes it expensive to be poor. They locate and market heavily in low income neighborhoods, presenting themselves as the best option for families who are struggling financially. Rather than aiding or empowering families in their struggle, payday lenders exploit them and draw customers into a cycle of debt.
Christians who are called to serve the poor and recognize the admonishment “do not rob the poor, because they are poor” (Proverbs 22:22) are recognizing payday lending for what it is: a matter of morality and economic justice.
Across the country, congregations like Northeast Baptist help members and neighbors out of payday debt on a relational basis. New ministries and programs are emerging to offer financial counseling and loan repayment programs to help individuals break the cycle of predatory debt.
Meanwhile, faith communities are advocating for policies to reign in the most unscrupulous lenders through measures such as a cap on interest at around 36% APR and regulations by the Consumer Financial Protection Bureau to prevent lenders from keeping customers in long-term, high-cost debt. Through coalitions like Faith for Just Lending, they are bringing a Christian witness to the conversation about debt and payday lending – calling upon individuals, congregations, lenders and government to each do their part to promote stewardship and just lending and put an end to predatory practices.
Getting a loan should be an opportunity, not a trap. Visit lendjustly.org for more information and to get involved.
Rachel Hope Anderson is the Director of Faith-Based Outreach at the Center for Responsible Lending (link is external) where she works on advocacy and policy related to debt and predatory lending. She was the co-founder of the Boston Faith & Justice Network (link is external), which engages Christians in Biblical justice through spiritual formation, community organizing and advocacy. Rachel is a graduate of Harvard Law and Divinity Schools.