Can Churches Provide A Meaningful Alternative To Payday Lending?

With one-in-four Americans turning to questionable financial products like payday and auto-title loans, an unlikely group is stepping in to provide consumers with a less-costly alternative. Churches across the country are helping members escape the trap of revolving debt by aiding them in obtaining safer loans.

The Washington Post reports that faith-based organizations are shifting the way churches approach charity by offering programs aimed at helping parishioners avoid predatory commercial lending agencies.

The church-backed programs assist consumers in obtaining loans through associated church credit unions by providing collateral for individuals who would not qualify for loans otherwise. The resulting loan often comes with near-zero interest rates and more manageable monthly payments.

In Virginia alone, the Jubilee Assistance Fund (JAF) has helped parishioners of the United Methodist Church secure 14 loans ranging from $500 to $8,000 in less than eight years.

According to JAF, the loans are meant to help those in crisis with rent, mortgages, medicine, utilities and food. However, they can also be used to refinance a predatory lender loan and help consumers escape the crushing interest rates associated with those loans.

Rodney Hunter, the pastor at Wesley Memorial United Methodist Church, which has helped a number of parishioners finance loans, tells the Post that churches are uniquely positioned to aid those facing financial hardships.

“This is what the church should do,” he says. “There’s a moral piece, I think, the church should care for the least in society. This is what I think the biblical mandate is.”

Hunter and his church were paramount in helping Nina begin to turnaround her finances.

For nearly three years, Nina was able to avoid accumulating interests on her $700 to $800 open-ended loans from Check Into Cash by routinely paying off the debt and immediately taking out a new loan. But when her hours were cut at work, she was unable to keep up the routine and quickly found the 300% annual interest created another mountain of debt.

In all, Nina estimates she paid $1,100 on the loan in first three-quarters of 2014, and still owes about $650.

Following her experience with the payday lender, Nina turned to her church when she needed assistance in making payments on about $8,000 in credit card debt.

The church offered funds as collateral so that Nina could qualify for a loan through the Virginia United Methodist Credit Union. She agreed to repay the loan at an annualized interest rate of about 6%, creating monthly payments of just $25 for two and a half years.

As part of the qualifying process for the assistance, Nina had to agree to several stipulations carved out by Jubilee and the church.

According to a brochure for the program, to qualify for the Jubilee Assistance Fund,
borrowers must agree to receive financial counseling, loan monitoring and payroll deduction.

Nearby Lakeside United Methodist Church has also helped parishioners in their time of financial vulnerability.

Dina tells the Post that when the pipes on her property burst, leaving a bill for $4,000, she first sought out a title loan. However, after being shocked by the high interest rates, she and her husband turned to their church.

The couple’s pastor helped them take out a loan for more than $3,000 at an annual percentage rate of about 6% through the Jubilee Assistance Fund. She says they were able to pay off the debt in about a year.

Those who have been helped by the Jubilee Assistance Fund say they are grateful, and hope it can be scaled up to provide a serious alternative to commercial lending.

Charles Swadley, the pastor who helped Dina and her husband, tells the Post that the program takes the perceived role of the church just handing out money to parishioners in need and creates a more meaningful lesson by tying in the financial counseling aspects.

“When you give money, you’re not necessarily teaching them how to use the money – you’re responding to the crisis,” he says. “And what we’ve got to do is teach, which is the harder goal.”

Churches step in with alternative to high-interest, small-dollar lending industry [The Washington Post]