The “ruinous consequences” of payday lending

“Very few things harden the heart more than usury in all its forms.”

A Baptist pastor in North Carolina wrote those words in the October 31, 1840 edition of the Biblical Recorder. Citing a slew of Bible verses from Exodus to Leviticus to Ezekiel, the pastor warned of the “ruinous consequences and the distress brought on a community by usurious and similar practices.”

Fast-forward nearly 175 years later and you’ll find Baptists who remain deeply concerned about the “ruinous consequences” of usury or payday lending on their communities. In April, a group of Louisiana faith leaders that included Baptists backed legislation to cap fees on payday loans and modestly limit the number of these short-term, high interest-rate loans a borrower can take out each year. The legislation — which failed after facing significant opposition from the payday industry — would have limited borrowers to 10 payday loans per year.

Yes, just 10 loans.

In Missouri, where annual rates on payday loans can reach 1,950 percent, the legislature passed new “regulations” that the payday industry didn’t even oppose. The St. Louis Post-Dispatch penned an editorial in March calling the reform efforts “phony”: “When a payday lending ‘reform’ bill sails through the Missouri Senate and the payday lending industry doesn’t scream bloody murder, you can be sure…it’s not really a reform.”

The bill, which is waiting for the signature of Governor Jay Nixon, forbids loan renewals and those unable to repay their two-week loan in full can demand a repayment plan to allow borrowers a two-to-four month period to pay off the loan without accruing additional interest.

Simply limiting loan renewals is far from meaningful reform though. A borrower can use his or her next paycheck to pay off the loan and then turn around and take out another loan. As one reform advocate noted, “You can get a loan at one payday shop to pay off a loan at another payday shop.”

In both Missouri and Louisiana, legislators rejected proposals for meaningful reform and emphasized their desire not to kill the payday industry. “I don’t want to put them out of business,” said Missouri Senator Mike Cunningham, a sponsor of the “reform” bill.

Study after study has shown the “ruinous consequences” of payday lending on the working class and in low-income communities across the country. The average annual rate of a payday loan in Missouri is more than 400 percent and elected officials like Sen. Cunningham are worried about putting EZ Cash or Ace Cash Express storefronts out of business?

If your business needs to exploit others in order to survive, something is terribly wrong.

It wasn’t many years ago that lending practices like those of the payday industry were criminal. In fact, for more than 300 years in America, usury was considered to be a serious crime and law enforcement sought to apprehend and incarcerate usurious lenders.

For centuries, usury was judged by poets and philosophers and prophets and priests as an especially persistent and pernicious evil. During the U.S. founding era, interest rates on loans in all 13 colonies were capped between 5 and 8 percent. These caps were rooted in historic Christian understandings of acceptable lending practices. Protestant reformers such as Martin Luther held that interest rates of 5 to 6 percent were moral with 8 percent as a permissible rate in some circumstances.

In the early 20th century, states began to adjust their usury laws to allow for higher rates. The industrial age brought with it more stable household incomes and created a demand for greater access to credit through moderately-priced consumer loans with low double-digit interest rates. Following World War II, all 50 states had interest rate caps on small loans ranging from 24 to 42 percent per year. Thirty-six percent was the median limit.

In 1978, the U.S. Supreme Court dealt a devastating blow to usury restrictions with a ruling that allowed national banks in deregulated states to export its high interest rates to states with strict usury laws. Deregulations and lots of legal loopholes set the stage for the emergence of the payday lending industry in the late 1990s.

During the early 1990s, payday lenders comprised only a tiny fraction of the financial services industry with just several hundred locations. A decade later, there were more than 22,000 payday storefronts in the U.S. The payday loan industry is now a multi-billion dollar enterprise with more than 12 million borrowers spending roughly $7.4 billion annually at thousands of storefronts.

In his recent column “The lie of payday loans,” Steve Wells, pastor of South Main Baptist Church in Houston, Texas, told a tragic story about a man from Waco, Texas who found himself penny-less and possession-less thanks to a payday lender. Wells asked readers to consider why the problem of predatory lending is a problem that should compel Christians and churches to take action.

His response was biblical, straight from the Book of Psalms: “How long will you defend the unjust and show partiality to the wicked? Defend the cause of the weak and fatherless; maintain the rights of the poor and oppressed. Rescue the weak and needy; deliver them from the hand of the wicked.”

Payday lending will continue to bring ruinous consequences and distress to our communities. Let’s speak up, educate others and advocate for reform. Now is the time for Christians and churches to take action.

Aaron Weaver

Author's Website
About the Author
Aaron Weaver is a recent graduate of the J.M. Dawson Institute of Church-State Studies at Baylor University, where he received a Ph.D. in Religion, Politics & Society. He blogs at and is the author of James M. Dunn and Soul Freedom (Smyth & Helwys, 2011).

Read more posts by

  • RalphCooper

    Great article. I have seen people jailed because other things they needed to pay could not be paid, like traffic tickets, because the payday lender got first priority, even ahead of child support.

  • Adam Brot

    Our problem is that we now live in a world devoid of personal responsibility. Yes payday lenders have been lending to people unable to act on their own behalf (the mentally ill, drunk etc.) but most of the people borrowing from payday lenders are adults who should know better.

    We need to return to a world where we treat adults as adults, and if they are stupid enough to borrow money at high interest rates then roll those debts onto another loan then they deserve all they get.

    Perhaps what we need is an exam at the end of school days, and if you fail it you get a “stupid” rating put on your credit file and get banned from ever being able to borrow money? Only those who show themselves able to understand what the hell is happening in their world should be allowed to have things like a full bank account, mortgage, credit card, overdraft, loan etc.