“Thus says the Lord: Do justice and righteousness, and deliver from the hand of the
oppressor him who has been robbed.”
– Jeremiah 22:3 ESV
I, a White
middle-class woman, am the daughter of parents who have bank accounts with
multiple banks and credit unions. When I was a pre-teen my mom took me to the
bank and helped me open up a savings account and a checking account. Almost
everyone I know back home, both young and old, have a bank account. There are
5-10 mainstream banks and credit unions in my hometown. Banking is the norm
where I come from; however, this is not the case for all Americans. Millions of
Americans are hunted and consumed by predatory lenders a.k.a. the payday loan
industry.
Financial Rape
The payday loan industry is guilty of financial rape. It has
financially taken advantage of inner city Americans for the last two decades.
When mainstream banks abandoned impoverished neighborhoods, the payday loan
industry filled the gap. With more payday lending locations than McDonald’s in
the U.S., these companies confidently state that they are often the only
available line of credit for people in poverty.[i]
Payday lending is a niche financial product that targets
subprime borrowers. An estimated 25.6% of all American households, equaling 39
million adults, are either unbanked (individuals without an account at a bank
or other financial institutions) or underbanked (individuals that lack access
to mainstream financial services usually offered by retail banks). Significant
racial and ethnic disparities also exist in terms of access to mainstream
financial services. While only 18% of White Americans are either unbanked or
underbanked, 53% of African Americans, 43% of Hispanics and 44% of Native
Americans are either unbanked or underbanked. The payday loan industry
intentionally targets the underbanked and unbanked populations of ethnic
minorities. .[ii]
History
Payday lending was almost unheard of in the 1980’s but
materialized in a limited form as the declining income of lower income workers
created the dependency of American households on credit to pay routine
expenses. By the mid 1990’s second-chance financial businesses realized the
profit possibility of accumulating an average of 20% on every dollar loaned out
as a cash advance. The temptation of inflated profits from credit-impaired
borrowers eventually piqued the interest of Wall Street investors and the
mainstream banks.[iii]
Corrupt Line of
Credit
All
of the major payday lenders receive their credit from the nation’s largest
banks: Wells
Fargo, JPMorgan Chase, US Bank and Bank of America. By investing in triple-digit interest
payday lending, these
mainstream banks communicate a callous disregard for their own corporate
promises to promote the financial well-being of communities.[iv]
Quick Cash= High
Interest Debt
Payday loans are enticing to those individuals who may be
cut off from mainstream credit sources. They are reeled in by the promise of
immediate access to cash. However, this quick and easy access to cash comes at
a high financial price to the borrowers. Payday lenders do not perform underwriting (the process of verifying the information given to the lender from the borrower
for the basis of qualification, as well as assessing information on the
borrower’s credit history)[v], like
the majority of lenders. They simply verify a source of income for repayment.[vi]
This type of high-risk lending preys on those who may lack budgeting skills or
those in dire need of quick cash- a large percentage of my neighbors.
In order to offset potential loan defaults, the payday loan
industry strategically charges very high borrowing fees and encourages repeat
borrowing to ensure maximized profits. The industry advertises their product as
a sensible choice for a one time emergency; however, the reality is that the
average borrower takes out nine payday loans per year in a rapid series.[vii]
Villain in Disguise
Payday lenders view themselves as heroic and noble because
they are courageous enough to do business where banks are too afraid to invest.
They claim they are providing an important service for the individuals who
otherwise would have been trapped
by their bills due to a lack of access to mainstream banks and/or quick funds. They
assert they are helping these people.[viii]
Consider the following two scenarios and decide whether or not the payday
lender is helping individuals:
Bill takes out a payday loan. As
soon as he gets his next paycheck he pays back the entire outstanding balance
plus all of the required fees, which equals over half of what he gets paid. Now
Bill is short on cash for the next couple of weeks and will probably take out
another payday loan to get himself through until his next paycheck. Bill is
stuck in a vicious cycle of taking out loans and paying them back with high
interest.[ix]
Danny is an alcoholic with a wife
and kids who works part-time. His wife asks him to go get some groceries. Danny
does not have any money, so he walks to the Cash-N-Go down the street. He goes
inside the Cash-N-Go and grabs some cold hard cash. When he exists, the
blinking neon signs from the liquor store adjacent to the Cash-N-Go catch his
attention. In minutes Danny spends every cent of the cash on liquor, failing to
buy the groceries he originally set out to buy.
As Bill’s poverty increases, the payday lender’s profit increases.
At the very least, $3.4 billion dollars of wealth is stripped from low-income,
working poor individuals every year in payday lenders’ fees alone.[x]
As for Danny, his addiction wins again as easy to access cash is right next door to the liquor store.
Danny’s family suffers, while the payday lenders profit.
More and more Americans are transitioning from middle-class
to economically insecure, and are becoming vulnerable to predatory lending
schemes. About 12 million Americans annually acquire long-term debt by taking
out a short-term loan. Forty-four percent of borrowers ultimately do not
complete their repayments because of the triple-digit interest charged on each
loan , thus thrusting them ever closer to poverty.[xi]
My friend Antoinette, an African American woman raised on the east side
of Indianapolis, shares her experience:
“I
was raised on payday loans. My mom started getting payday loans because she was
unable to get a bank account due to her amount of debt. The payday loans hurt
my family because they took so much money out of my mom’s checks [in order to
pay back the high interest loans]. My mom is still on payday loans but I was
able to get a bank account. I feel very independent because no one can take
extra money from me.”
Northeast Denver
Unveiling the truth about predatory lenders is important to me because they are feasting in my own backyard.
The nine neighborhoods of Northeast Denver served by PBC are proof of the
payday lenders’ niche population. Our largest ethnic population is Hispanic,
followed by African American and then White. 4400 of my neighbors are living in
poverty.[xii]
Payday lenders have targeted our impoverished and ethnic-minority community.
There are fourteen payday lenders in the area but only four banks and four
credit unions.
Christian Response to
Payday Lending
As Christians, we should view all
things and respond to all things, including the economy, through the lens of
Scripture. Based on our understanding of economics as seen in Scripture, how
should Christians respond to payday lending? The church is commanded to care
for the poor. Payday lenders are preying on the poor; therefore, responding to
payday lending is a part of us caring for them.
Here are a few practical responses:
1. Teach church congregants and
neighbors about what the Bible says about money and economics.
2. Provide counseling for those who
are in debt and help them obtain financial freedom. Explain to payday loan
borrowers the truth about the payday loan industry.
3. Model stewardship in your own
finances and teach others.
4. Take the unbanked and
underbanked to a trustworthy and credible bank or credit union and help them
establish a bank account. For example, my friend Greg took Ragat, a fatherless kid growing up in poverty, to the bank last week and helped him open up a bank account.
5. Keep one another accountable
regarding bill payments, loans and stewardship.
6. When voting in elections pay
close attention to items related to payday lending legislation.
7. White, middle and/or upper-class
Christians should use their power and voice to advocate for the poor and ethnic
minorities. For example, encouraging and pressuring mainstream banks to serve
the underbanked and unbanked populations, and pressuring payday lenders to
close.
8. Research your bank. Find out if
they are a credit-lender to the payday loan industry. If they are, discuss with
them the negative effects of this lending and switch to a bank that is not a credit-lender
to payday lenders.
Let us be obedient to God’s
command in Jeremiah 22:33 to do justice and deliver those who have been robbed from their oppressors.
[i] Somanader, Tanya.
"Report: How Payday Lenders Make Billions By Fleecing Americans In
Poverty." ThinkProgress.
http://thinkprogress.org/economy/2012/01/19/407365/report-how-payday-lenders-make-billions-by-fleecing-americans-in-poverty/?mobile=nc
(accessed October 20, 2012)
[ii] "Unbanked and Underbanked." Wikipedia.
en.wikipedia.org/wiki/Unbanked (accessed October 20, 2012).
National People's Action. "Profiting from Poverty." NPA-US.
www.npa-us.org/files/images/profiting_from_poverty_npa_payday_loan_report_jan_2012_0.pdf
(accessed October 20, 2012).
[iii] National People's
Action. "Profiting from Poverty." NPA-US.
www.npa-us.org/files/images/profiting_from_poverty_npa_payday_loan_report_jan_2012_0.pdf
(accessed October 20, 2012).
[iv] Ibid
[v] Guttentag, Jack M.. The
Mortgage Encyclopedia: An Authoritative Guide to Mortgage Programs, Practices,
Prices, and Pitfalls. New York: McGraw-Hill, 2004.
[vi] Ibid
[vii] National People's Action. "Profiting from
Poverty." NPA-US.
www.npa-us.org/files/images/profiting_from_poverty_npa_payday_loan_report_jan_2012_0.pdf
(accessed October 20, 2012).
[viii] Westergaard, Catherine . "Turning Poverty Into a
Multibillion-Dollar Industry." npr books.
http://www.npr.org/templates/story/story.php?storyId=127236038 (accessed
October 20, 2012).
[ix] "The Positive and The Negative
Side of Payday Loans - Ahsenali Investing Portal." Ahsenali Investing
Portal http://www.ahsenali.com/payday-loans-nega-posi.php (accessed October 20,
2012).
[x] Somanader, Tanya.
"Report: How Payday Lenders Make Billions By Fleecing Americans In
Poverty." ThinkProgress.
http://thinkprogress.org/economy/2012/01/19/407365/report-how-payday-lenders-make-billions-by-fleecing-americans-in-poverty/?mobile=nc
(accessed October 20, 2012).
[xii] RNR Design Group.
"Building A Way Out of Poverty" Upstream Impact: http://upstreamimpact.org/ (accessed October
20, 2012).
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