Faith V. Greed: The Battle Between Faith-Based Organizations And The Payday Loan Industry

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Faith V. Greed: The Battle Between Faith-Based Organizations And The Payday Loan Industry

Image courtesy of Karen Chappell

“The Bible condemns gaining wealth through usury; and the writers of Scripture warn about gaining wealth through exploiting the poor… [but] The State of Alabama allows Payday lenders to charge an annual interest rate of 456%.”

So reads a 2014 Alabama Baptist State Convention resolution condemning predatory payday loans and recommending a 36% cap on interest rates. This resolution is just one of many efforts by faith-based organizations all around the country to combat the payday loan industry and other questionable financial products they believe are hurting low-income Americans and eroding communities.

“The Bible is really clear about usury,” Stephen Stetson, policy analyst at Alabama-based advocacy group Arise Citizens’ Policy Project, tells Consumerist of the high interest rates that are a hallmark of payday loans. “People see it as a sin, it’s a simple idea that you shouldn’t take advantage of others.”

Those principles have led a number of faith-based groups to more vocally protest the industry they say takes advantage of disadvantaged borrowers and traps them in vicious cycles of debt, interest payments, and repeat borrowing.

It’s A Moral Issue, Not A Political Issue

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The short-term, low-value payday loans issued in Alabama and 31 other states typically have triple-digit annual percentage rates and sometimes include fees that effectively drive that APR higher.

While the loans are meant to be paid back in two weeks, most lenders allow consumers to roll their debt over into a new loan, incurring more fees and accruing more interest.

In fact, the a 2014 Consumer Financial Protection Bureau report found that 4-in-5 payday loans are made to consumers who are already stuck in a debt trap. By renewing or rolling over loans the average monthly borrower is likely to stay in debt for 11 months or longer.

In Alabama, where payday loans can be issues with APRs of more than 400%, groups such as the Alabama Citizen Action Program have hosted rallies and spoken to state legislators about changing the landscape of the predatory industry within state borders.

“This is a moral issue as far as I’m concerned,” Joe Godfrey, executive director of ALCAP tells Consumerist. “There’s a predatory nature to it. The Bible tells us we aren’t supposed to take advantage of people, but payday does that.”

In states with high poverty rates, the industry has become entrenched in lower-income communities.

A recent report released from the Howard University Center on Race and Wealth found that of the 1,032 payday stores in Alabama, 976 are located in areas with high minority populations and incomes between $20,000 and $60,000.

While payday loan outfits may be a common sight in parts of Alabama, the industry’s presence is dwarfed by that of the church in this deeply religious state.

According to the Association of Religious Data Archives in 2010 nearly 62.9% of Alabamans attended one of the state’s nearly 10,514 churches regularly.

“It’s one of those things where the Bible is really clear about usury,” Stetson says. “And a lot of people in Alabama are governed by morality, by religion.”

And while one might assume that church groups are only concerned about the well-being of their congregants or at least those on the same end of the political spectrum, group leaders claim that’s not the case. ALCAP’s Godfrey acknowledges that the group is more conservative than some but clarifies that “This is not a liberal versus conservative issue, this is simply a right or wrong issue.”

Taking A Stand Against Payday Loans

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Even if the Bible didn’t contain guidance on usury, church leaders say they can see the need for lending reform just by dealing with their community, whether it’s seeing congregants in the pews on Sunday or through outreach programs like food pantries and clothing drives.

“I think some churches, they are seeing their congregation get caught up in these loans themselves,” says Stetson. “People are coming to pastors saying ‘I’m in quicksand and can’t get out.'”

He cites the example of a phone operator at a church in Birmingham who got so far into the payday debt trap that lenders were calling the church. The harassment was so constant that the church had to shut down the switchboard.

“What a lot of these churches see is that their efforts are being perpetuated by these systems of debt,” Stetson explains. “Payday lenders are driving this ongoing demand.”

Pushing For Change

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Although churches and their fellowships only make up a small percentage of the country’s population, that doesn’t mean their calls to change the payday loan landscape haven’t been heard.

The Virginia Interfaith Center, the oldest faith-based advocacy group in the state, fights to advance public policies that better serve low-income, vulnerable, and underrepresented communities, including payday lending.

“The Interfaith Center has a long tradition of trying to address the root causes of issues,” Marco Grimaldo, president and CEO of the center, tells Consumerist. “When we see things like unscrupulous lenders and people taking advantage of consumers, that has much bigger implications than financial issues. When it comes to debt of this nature, it spirals out of control in a person’s life. That’s a root cause of people’s poverty and pain; it’s a structural thing that we think needs repaired to keep people from falling into poverty.”

While payday lending isn’t included in the groups’ policy priorities this year, Grimaldo says it’s an issue that is continuously monitored and supported by members.

In the past, the group has supported a statewide 36% annual percentage rate cap on payday lending and the similarly predatory auto-title loans. On the federal level, the Center supports the Consumer Financial Protection Bureau’s work to regulate subprime lending.

The group’s stances against predatory lending extends beyond the typical bricks-and-mortar storefront lenders. Two years ago, it was an integral part of an attempt to ban online payday loans.

“It’s our opinion that we shouldn’t have Internet loans,” Grimaldo tells Consumerist of a payday-specific piece of legislation in Virginia. “The law says brick and mortar, and omits references to organizations outside the Commonwealth. If the company is not physically located here you shouldn’t operate that business. That continues to be something we press for.”

Payday lenders have been known to find their way around state laws by operating online marketplaces or claiming affiliation with tribal reservations.

Grimaldo says the Interfaith Center has been fighting an uphill battle to push through state legislation that would cap payday loan interest rates.

“It can be disheartening,” he says. But that’s the case in most states where payday lending is legal.

Each year, state legislators around the country introduce, debate, and even pass a number of bills claiming to better serve consumers who need help with short-term, low-value loans.

In Kansas, the Catholic Charities of Northern Kansas has been working to help victims of predatory lending since 2007.

Last year, Claudette Humphrey, a director with Catholic Charities testified about the state’s payday lending environment before the Kansas House Financial Institutions Committee. At the time, legislators were considering bills that would address the predatory lending industry.

The Topeka Capitol Journal reported that Humphrey opined about the dangers of the loans, even sharing her own story of falling into the payday debt trap.

While the reform didn’t go far, Catholic Charities of Kansas and other faith-based groups in the state continue their push for reform.

The Catholic Diocese of Salina, KS, urged state lawmakers to once again consider stricter regulations on predatory lending last fall when Bishop Edward Weisenburger addressed legislators in a series of videos.

In one video specifically addressing payday lending, Bishop Weisenburger described the Bible’s teachings on usury, noting that the practice is “contrary to the teaching of Christ.”

Taking To The Streets

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Back in Alabama, ALCAP and Arise have taken their fight to the people, hosting rallies across the state. Just last week, the groups participated in a rally with the Birmingham YWCA.

“Those are rallies to raise awareness and we’ve been talking with legislators and giving information along the way,” Godfrey tells Consumerist.

Stetson says the groups hope these gatherings will show how galvanized the church communities are about the message of payday loan dangers.

“It’s really been a fight between our growing coalition and the industry,” he says.

On the flip-side of public rallies, many congregations have formally put into writing what they want to see changed in the payday lending realm.

Much like the Alabama Baptist State Convention’s resolution mentioned earlier, the Alabama-West Florida United Methodist Church’s annual conference in 2014 included an almost unanimously supported resolution against predatory lending.

“From our perspective, it’s cool because it’s not partisan,” Stetson says of statewide resolutions. “There are groups working together that might not agree on other issues.”

Focusing On Home

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While rallies and statewide resolutions work to energize at a grassroots level, churches have also spent years trying to counteract the devastating effect payday loans have on their own communities by establishing alternative loan programs.

Back in January, Consumerist reported on a number of church-backed programs assisting consumers in obtaining loans through associated church credit unions by providing collateral for individuals that may not otherwise qualify.

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, told the Washington Post at the time that churches are uniquely positioned to aid those facing financial hardships.

“This is what the church should do,” he said. “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.”

In Kansas, the Catholic Charities offers a similar program called the Kansas Loan Pool, which makes lower-interest loans of up to $1,000 to people trying to pay off payday or vehicle title loans.

According to the Salina Diocese, Catholic Charities first began working to help victims of payday lending in 2007 through a partnership with the Salina Area Savings and Education Loan Program, combining funding from University United Methodist Church in Salina and loan processing by Bennington State Bank to offer short-term loans to help residents get out of high-interest debt and establish credit.

To expand that program and create the Kansas Loan Pool, the organization secured a grant from the Catholic Campaign for Human Development, facilitated by Catholic Rural Life to fund administrative costs, while the United Methodist Health Ministry Fund donated $25,000 and Catholic Charities donated another $25,000 to guarantee the alternative loans.

Today, that program offers 12-month $700 loans. Once approved, applicants must meet with administrators for the fund each month to craft a budget and ensure payments are made on time.

Starting At The Beginning

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While faith-based and other consumer advocacy groups have long pushed to reform the payday industry, many churches are working to educate their congregations about the dangerous lending practices in the hope they can stop the problem before it even starts.

The Jubilee Fund and the Kansas church-backed programs both include education financial literacy elements.

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.

Godfrey, with ALCAP, recalls pastoring at a church in Montgomery that had a retired financial planner who volunteered his time to help church members with their finances, while also administering a loan relief program.

“When someone came to the church we would set up an appointment with him,” Godfrey recalls. “He would counsel with them to talk about their situation, he would talk about their finances, income and then help draft a budget for the family.

If the planner determined the need was genuine and the member could follow the program stipulations, they would receive a check.

“Churches need to step up and be a resource for consumers and the community,” Godfrey says.

Changing Local Laws

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Faith-based groups don’t just urge state congressional leaders to make changes to the payday lending industry, they’ve also served an integral part in shaping local lending laws.

Back in 2013, Chesterfield County, VA, leaders signed a strict policy limiting where payday lenders could set up shop. Under the new rules, short-term, high-cost lenders must maintain a minimum separation of one mile between their property lines and can not be located next to a residential property.

Grimaldo tells Consumerist that a local Catholic church — St. Edwards the Confessor — was active in the local law changes.

“The church really became the conduit,” he says.

Likewise, churches have worked on the local level with the Alliance for Responsible Lending In Alabama, in conjunction with the Alabama Appleseed Center for Law & Justice, to promote zoning laws restricting payday lending in cities.

Stetson tells Consumerist that more than 20 mid-sized cities in Alabama have passed some kind of ordinance restricting payday loans.

In Montgomery, the city adopted zoning ordinances in 2014 that require new payday and title loan businesses to be at least 2,500 feet apart as well as at least 250 feet away from schools, churches, parks and houses.

The city of Pelham adopted a one-year moratorium last summer on new payday and title loan stores, pawn shops, check-cashing business and other businesses.

It’s A Start, But Still Not Enough

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While focusing locally makes sense for church groups, Stetson says that the real change will come from the state or national level.

“We agree that it’s important to teach people smart decisions and to be proactive,” Stetson says. “But that won’t solve the problem, we don’t want to understate the extent to which government intervention is needed.”

City and county ordinances regarding payday lending storefronts also won’t end the cycle of debt faced by so many consumers.

“They have limited effectiveness,” he say. “In reality most existing stores are grandfathered. You might break up density, but you won’t solve the problem. This needs to be a structural problem.”

Meaningful change to payday laws in Virginia, Alabama, Kansas and other states could be coming as soon as the this spring when the Consumer Financial Protection Bureau is expected to hand-down long-awaited rules governing the $46 billion industry.

The agency is reportedly considering rules that could establish tighter restrictions to ensure consumer have the ability to repay the often debt-cycle enduring loans.

Other rules could require payday lenders would be required to perform credit checks, placing caps on the number of times a borrower can draw credit and finding ways to encourage states or lenders to lower rates.

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  1. furiousd says:

    It’s odd that they cite how usury is condemned and then offer a solution of just limiting the usury. Granted, I’m glad someone’s speaking out about it and as many opponents as can be had in this issue will help. I’d like to see more alternative offerings that would just trainwreck the business model of these leeches. Banks for the same demographic, with no connection to Federal practices, backed by these religious groups? Lending without usury?

    • DyinMyelin says:

      If you take away the moral overlay, I don’t think interest-based lending per se is bad. I got a very reasonable loan rate for my auto from my credit union. Granted, I was blindsided by the one-time fee to do so. It is nice that a church can make completely interest-free loans, but they also pay no taxes and get a steady revenue stream from congregants and the mother ship. I doubt they are so solvent though as to finance every mortgage, car loan, and college education in their community, so banks must play a part and cover their outlay of capital and risk via interest. Beware the absolutism of religion.

  2. econobikerredux says:

    This is one argument that I have against the nationally sindicated radio and tv personality, the very pious Dave Ramsey in hjs business of selling counseling for people to get out of debt.

    As much as Mr. Ramsey rails against the credit card, rent to own, payday loan, etc. industries, his business model of teaching people to get out of debt does not include advocacy against these industries to get the laws changed (or changed back) to protect the consumer. In his home state of TN, there have been government public commenting forums about the payday loan industry but no one from his organization has ever advocated for better laws to protect the consumer. And, as above, he would not want this because that would dry up his pipeline of stupid people and churches to whom to sell the Financial Peace University programs.