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Churches use political pressure, small-dollar loans to fight predatory payday lending

A payday loan location in Henrico County, Va. Photo by Taber Andrew Bain/Creative Commons

(RNS) — Anyra Cano Valencia was having dinner with her husband, Carlos, and their family when an urgent knock came at their door.

The Valencias, pastors at Iglesia Bautista Victoria en Cristo in Fort Worth, Texas, opened the door to a desperate, overwhelmed congregant.

The woman and her family had borrowed $300 from a “money store” specializing in short-term, high-interest loans. Unable to repay quickly, they had rolled over the balance while the lender added fees and interest. The woman also took out a loan on the title to the family car and borrowed from other short-term lenders. By the time she came to the Valencias for help, the debt had ballooned to more than $10,000. The car was scheduled to be repossessed, and the woman and her family were in danger of losing their home.

The Valencias and their church were able to help the family save the car and recover, but the incident alerted the pastoral duo to a growing problem: lower-income Americans caught in a never-ending loan cycle. While profits for lenders can be substantial, the toll on families can be devastating.

Now, a number of churches are lobbying local, state and federal officials to limit the reach of such lending operations. In some instances, churches are offering small-dollar loans to members and the community as an alternative.

The opposition is not universal, however: Earlier this year a group of pastors in Florida lobbied state lawmakers to allow one payday loan firm, Amscot, to expand operations.

An estimated 12 million Americans each year borrow money from stores offering “payday loans,” billed as a cash advance to tide workers over until their next paycheck. The vast majority of borrowers, research compiled by finder.com states, are 25 to 49 years old and earn less than $40,000 a year.

Keith Stewart of Springcreek Church. Photo courtesy of Keith Stewart

The promise of quick cash may seem appealing, but people living paycheck to paycheck are often unable to repay quickly. In Garland, Texas, northeast of Dallas, Pastor Keith Stewart of Springcreek Church said one-third of the people coming to his congregation for assistance cited payday loans as a problem in their lives.

The lenders, Stewart said, “set up a credit trap and keep people in perpetual payments.” He said he was frustrated to have his church help people with food or rent, only to leave them as prey for the lenders.

And for Frederick Douglass Haynes III, who pastors the 12,000-member Friendship-West Baptist Church in Dallas, the trigger was seeing a local plant nursery replaced by a “money store” offering payday loans. That was followed by a similar conversion of a nearby restaurant and the transformation of a bank branch into a car title loan store, he said.

“In our community alone, a five-mile radius, you had 20 to 25 payday loan and/or car title loan stores,” Haynes recalled.

Another surprise came when he saw the interest rates the lenders charged. “The highest I’ve seen is 900 percent; lowest is 300 percent” per year, he said. Officially, state usury laws generally limit the amount of interest that can be charged, but loopholes and fees push the effective interest rate much higher.

For Haynes and Stewart, part of the answer was clear: Local officials needed to place limits on the lenders. In Garland, Stewart and 50 members of the 2,000-member Springcreek congregation testified at a City Council hearing, after which Garland officials restricted what lenders could charge and how they could renew loans.

The payday lenders quickly left for other communities, Stewart said, but activism by him and others succeeded in having those communities regulate the lenders as well.

In Dallas, Haynes said he was struck when those caught in the payday loan situation asked, “What alternatives do we have?”

“It’s one thing to curse the darkness and another to light a candle,” Haynes said. “I was doing a great job of cursing the darkness, but there were no candles to light.”

The Friendship-West pastor then learned of the Nobel Prize-winning work of Muhammad Yunus, whose microloan concept helped millions in Bangladesh. Haynes became convinced the church needed a microloan fund to help those in need.

The church now operates Faith Cooperative Federal Credit Union, which offers checking and savings accounts as well as auto, mortgage and personal loans. Among the personal loans are small-dollar loans designed to replace those offered by payday lenders, Haynes said.

Frederick Douglass Haynes III. Photo courtesy of Friendship-West Baptist Church

Interest rates on the small-dollar loans range from 15 percent to 19 percent, depending on a borrower’s credit standing, he said. While higher than, say, a home equity credit line, the rates are a fraction of those charged by the money stores.

“We’ve given out over $50,000 in small-dollar loans, and the rate of customers who pay back their loans in full is 95 percent,” Haynes said. “We’re demonstrating that people just need a chance without being exploited. If they’re given a chance, they’ll be responsible.”

Haynes said the credit union has helped members of his church beyond those needing a short-term loan.

“We’ve had persons caught in the debt trap set free because they have access to this alternative,” he said. “Then they open up accounts and get on the path toward not only financial freedom but also financial empowerment. The energy our church has invested in the credit union has been a blessing, and the credit union has been a blessing, because so many people have benefited.”

Churches in other communities are taking up the idea of providing resources to those in need. At La Salle Street Church in Chicago, senior pastor Laura Truax said the group has dedicated $100,000 to a fund for small-dollar loans. So far, the group has made nine such loans and wants to expand its work.

The National Hispanic Leadership Conference, based in Sacramento, Calif., regularly brings the issue before state and congressional legislators, said Gus Reyes, the group’s chief operating officer.

“You’ve got to keep pushing,” Reyes said. “There’s a lot of money behind (payday lending), because it generates income” for the lenders.

“But it takes advantage of those who are marginalized. And so, because we have a heart for those folks, that’s an important issue for us.”

About the author

Mark A. Kellner

28 Comments

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  • This is the kind of action churches should be taking. Also, address the underlying reason these predatory lenders are so prevalent. Forty percent of Americans spend more than 1/3 of their income on housing (usually rent). People without whom society would not function, such as store clerks, grocery shelf stockers, CNAs and home health aides who care for the elderly and sick, and many others, don’t make enough to afford the basic necessities of life in many parts of the country. That’s a moral and political problem, and a critical one.

    Meanwhile, some states are reining in predatory lenders. Colorado passed an initiative, with 77% voting in favor, capping interest rates at 36%.

  • Consumer protection laws are needed. There should be limits on what is allowed to be done to desperate people. Of course, if we are talking about Texas, don’t expect the majority of elected officials, who are Republicans, to help. You know, free markets, capitalism, etc. apparently have no limits. You know, caveat emptor reigns. Maybe someday we will have equal recognition of caveat venditor.

  • There are (were) some consumer protection laws. Too bad the people most responsible for enforcing them are not interested in doing so. Even though this is also a problem for people in the military as well.

    Trump is a big fan of predatory lending. Even though it runs rampant through his voting base
    https://www.thenation.com/article/the-trump-administration-just-gutted-payday-lending-regulations/

    https://www.military.com/daily-news/2018/08/16/lawmakers-charge-trump-administration-easing-payday-lenders-troops.html

  • Thanks for those links. I had read a brief article about the Trump administration reducing oversight -but haven’t read much. Those articles help. Why are state and federal governments so reluctant to step in to keep this kind of abuse from happening? I get that they don’t want to “restrain” trade, but there is real abuse happening. Ah, well. Can we expect any help from Republicans?

  • This is where lobbying is at its most pernicious.

    Some municipalities even take the principles of predatory financing as a way to raise funds. Ferguson Missouri was infamous for its law enforcement and courts using nonsense fines and interest to soak the poor and fund operations.

    Many states are trying to step in. But finance reform is not on the short list of things to address by many politicians.

    There is too much money made in it and the victims are easy to lead against their economic interests with nonsense diversion.
    ( Rant alert )
    Republicans are part of the problem. For the most part their social agenda is used to get people to support a corporatist agenda. The Republican controlled Congress didn’t pass anything resembling their social agenda but somehow got their tax plan passed. The one which attacks all people who work for a living to benefit the ultra wealthy.

  • An excellent example of why church people should be and should have always been on the left side of politics. Why is most of church out voting for reduced regulation of industries designed to make obscene amounts of money off of poor people?

  • Just read a quick article that Colorado voters just passed a referendum to address some of the excesses of pay day lenders. Need to see more of this. Maybe Democrats getting more positions in state legislatures will make a difference. Agree that the Pubs are a big part of the problem – all that pesky “regulation’ that inhibits free markets

    Such a joke. I have been trying to read the materials by Medicare Supplement Part D insurer sent regarding changes to the plan I have, drugs taken on and off the top tier list, change sin where drugs can be bought for best coverage All written by lawyers, of course, and it is about 100 pages long. Oh, yeah, I am really going to make an “informed” decision about my coverage.

  • Yeah! Our health care system is a mess.

    I am such a big fan of single payer health insurance. My parents and in laws owe their lives to government run health insurance. (Parents are retired government workers. In laws live in a country with “socialized medicine”)

    Thanks to excesses by conservatives the idea of compromise like the ACA seems pointless. For Democrats they might as well lobby hard for what they really want. Healthcare for all.

  • The unfortunate thing is that these entities fill a market need – those that need a small float. Unfortunately, those taking the loan cannot pay back the amount borrowed regardless of the terms. That is the real issue.
    My state regulates same day loan businesses, but still the same stories noted above continue; again, not because of the terms; but because the borrower cannot pay back at all.
    The “lenders” are savvy enough to play within the law to confiscate when the default occurs.
    Unfair? Maybe. But you don’t pay back a loan the lender has the right to take your stuff.
    The real issue is why the need. That’s what needs to be addressed. On a side note, if these entities are regulated out of business; the need will still exist. However, it will be filled by a cash-based system run by the local “protector”; Chicago style.

  • Capping payday interest rates at 36 percent is hardly evidence of either a bargain or a fair deal. Traditionally in this county, religious and immigrant groups have had lending societies to help people. In some cases, the loans were entirely interest-free. Habitat for Humanity does this now with interest-free mortgages for the houses it builds. We need to return to the better values that — in the best cases — made us a successful country.

  • I agree, Spuddie, with that last thought. We tried to expand access to health care by giving tax breaks to employers who provided it for employees – and through some strong union efforts that got that ball rolling. But what developed is now a nightmare of the health care industry being controlled by the insurance industry. In that scenario, the consumer of health care has to make two different industries profitable. But worse is the hold the insurance industry has on the organization of the health care market.

    One other point is that health care is complex. Asking someone to figure out what insurance contract will offer the best “protection” is impossible because health care needs are unpredictable and health care solutions are the stuff of an incredible science that the average person cannot understand. It is not like making a choice between apple A and apple B at the supermarket.

    The U.S. system leaves it well below tops among industrial countries in several measure of health care. We may have great health care but what we can’t do is make it accessible to citizens the way so many other countries have found a way to do.

  • Yes, people are too stupid to make their own informed decisions. Let’s hope the government tells us what to do…

  • Since there is a good deal of fraud, misrepresentation and outright bad dealing with these kinds of loans, calling them “informed consent” is a flat out lie. Lets hope the government chooses to represent people here as opposed to predatory lenders.

    By all means attack the overwhelming majority of poor and working class people who end up in financial straights because of this kind of abuse of the finance industry.

  • These entities fill a legal gap which is exploited and enabled by politicians. Politicians who feel more beholden to lenders than the people they allegedly represent. The terms of these loans are invariably usurious and designed to prevent easy payback.

    “The “lenders” are savvy enough to play within the law to confiscate when the default occurs. ”

    That is hardly the norm anymore. They not only confiscate but continue to charge the borrower. Courts don’t like it very much, but few borrowers can afford representation to challenge the lenders.

    “On a side note, if these entities are regulated out of business; the need will still exist. However, it will be filled by a cash-based system run by the local “protector”; Chicago style”

    Not true. A cash based system would bankrupt our overborrowing based economy. But there is no financial necessity for small time lenders to set terms which trap borrowers in virtual peonage. Underregulated financial entities always lead to trouble for people who work for a living as seen by the various “bubbles” we have encountered pretty much every 5-10 years since 1980.

  • These businesses exist because there is a demand for them.
    No matter what regulations are put into place, the borrowers can never repay their debt; which is why they takes loans from these places in the first place – because a bank won’t lend them the money.
    If you shut these places down (which I am not opposed to); sole proprietors will step in; like the local bookie. This is worse than the slimy same day lenders.
    As I said before, the real issue is the poverty of the borrowers or their spending habits.

  • Nobody demands to be ripped off and “garnished to death”.

    “No matter what regulations are put into place, the borrowers can never repay their debt; which is why they takes loans from these places in the first place – because a bank won’t lend them the money. ”

    Not true at all. The borrowers can never repay their debt because their debt is structured in a way to be unpayable by reasonable standards. Meaning they are intentionally there to cause financial harm. Meaning the public is not being adequately warned or the entities are far too protected.

    “If you shut these places down (which I am not opposed to); sole proprietors will step in; like the local bookie. This is worse than the slimy same day lenders. ”

    No, that is a ridiculous extreme supposition. There is a vast world far in between normal legitimate sane lending and economic predation. Its not that they can’t operate without being usurious, its that it is profitable and easy to do so. Especially when they have government protection and their victims are generally unable to afford decent representation.

  • That’s even worse. Healthcare is not an open market. Informed consent in that field is a joke. Most people have little to no choice over healthcare carriers and zero choice as to standard terms of coverage.

  • Yep. Thanks to the ACA.
    Can’t wait to get to government run single payer.
    Can’t wait for the DMV to determine what procedures I can(t) have.

  • No kidding they are structured that way.. simple time value of money with a substantial convenience fee associated with it.
    You can structure these repayment plans to go on forever; the borrower is still not going to be able to pay it back. Ever.
    It would be better if these places didn’t exist.

  • I will say this however, people who can lawyer up, just a little bit can work wonders in getting out of that trap.

    Judges for the most part hate these lenders. The lenders get away with a lot of illegal crap because they are not called out on it enough. Legal Aid Society does great work with this.

  • It was far worse before the ACA. Trumpcare is just plain stupid. DJT owes me $5K for those shenanigans.

    You sound completely ignorant as to how single payer works. Instead of reading panic fiction from the health insurance Lobby, see how the rest of the developed world deals with healthcare.

    Republicans call for death panels and micromanaging care (which you have supported as a form of religious expression)

  • It was better 15 years ago. Employers provided 3-4 health insurance options; and if you didn’t have insurance at work, you could get a stand alone policy from one of 15 carriers.
    Now, you’re lucky if your employer offers it; lucky if they pick up a portion and lucky if you don’t hit your 2,800 deductible.
    The ACA has forced doctors to consolidate into large medical groups with excess overhead for administrative purposes.
    Gone are the days of the local doctor. I thank Harry, Barry and Nancy every day.

  • Except for the 8-10 million people who were uninsured and creating public hazards or were losing their life savings to stay alive. Healthcare costs are still one of the top 3 causes of bankruptcy and economic stress in general. Single payer not only works, our own government employees and elected officials rely on it.

    “f you didn’t have insurance at work, you could get a stand alone policy from one of 15 carriers. ”

    At exorbitant rates up to 3x what one would pay in comparison with employer’s insurance. Who are you kidding?

    “Now, you’re lucky if your employer offers it; lucky if they pick up a portion and lucky if you don’t hit your 2,800 deductible. ”

    It was far worse when you had HMO plans in the mid 80’s to late 90’s. Most employers have scaled back subsidizing health insurance since 15 years ago because of deregulation (GOP lobbying).

    “The ACA has forced doctors to consolidate into large medical groups with excess overhead for administrative purposes. ”

    Nope. They were doing that before in order to drum up business. The ACA reduced premium costs through federal subsidy.

    Our healthcare system has been a deadly joke for the last 30 years. Pretty much coinciding with the demise of organized labor among the majority of those in the workforce. Relying on corporate American to ensure our health has been an unmitigated disaster.

    Frankly every developed nation besides the US has elements of a far better system than our own. Your last remark about doctors under single payer show how little you know about such things.

    “Gone are the days of the local doctor. I thank Harry, Barry and Nancy every day.”

    You should be blaming Ronnie and George for that.

  • As usual you are making up numbers.

    If your insurance was somehow “wrecked” by the ACA you were paying for a junk policy which didn’t cover nearly as much as you thought or need.

    Single payer is the only way to go here. No more pretending to compromise with ignorant conservative cretins in the pocket of the health insurance industry. The ACA was flawed but not for reasons you will come up with. Of course being a dishonest partisan shill you will never admit the truth of the matter.

    IT CAME FROM A CONSERVATIVE THINK TANK AND WAS ONLY OPPOSED BECAUSE OF AN ASSOCIATION WITH OBAMA
    https://www.forbes.com/sites/theapothecary/2011/10/20/how-a-conservative-think-tank-invented-the-individual-mandate/#1062b8386187

    https://krugman.blogs.nytimes.com/2011/07/27/conservative-origins-of-obamacare/

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