By Bob Allen
The Kentucky Baptist Fellowship, one of 18 state and regional organizations that partner with the Cooperative Baptist Fellowship, and the Southern Baptist Convention-affiliated Kentucky Baptist Convention are on the same team in a broad coalition of faith communities and other organizations supporting reform of payday lending.
The Kentucky Coalition for Responsible Lending organized support for a bill introduced in the Kentucky legislature to cap the interest rate on payday loans at 36 percent. Currently payday lenders can charge customers up to 391 percent annual interest on loans offered to cover short-term debt for a couple of weeks between paychecks.
Chris Sanders, interim head of the Kentucky Baptist Fellowship, said the industry practice is to stretch those high-interest “short term” loans out for weeks, months or even years, creating a vicious cycle of borrowing from Peter to pay Paul for the consumer and reaping big profits for predatory lenders.
“The Kentucky Baptist Fellowship intends to do something about this, in Washington and in Frankfort,” Sanders said in a recent op-ed commentary in the Louisville Courier-Journal.
“I’ve been preaching on it in our churches,” Sanders said. “Everywhere I go, people agree that something must be done. We are working to close the debt trap once and for all.”
Payday loans are one of a number of “alternative financial services” that operate outside of federally insured banks. Check-cashing outlets, money transmitters, car title lenders, pawnshops, and rent-to-own stores are all considered AFS providers by the FDIC.
Supporters say such businesses provide a needed service not offered by traditional banks and that small loans are unprofitable at bank interest rates. Payday loans typically involve low balances, in the $300 to $500 range, and have a two-week term coinciding with the consumer’s pay cycle.
The Kentucky Coalition for Responsible Lending says the problem is that the typical user of payday loans is unable to pay back the full amount in two weeks, takes out a second loan to pay off the first and so on. The coalition says data shows the typical Kentucky borrower took out 10 loans in the past year, and in that time an original $300 loan charging a $45 fee wound up costing a total of $450 in interest.
Republican state senator Alice Forgy Kerr is sponsoring the bill to cap the interest that can be charged by payday lenders in Kentucky. Similar legislation in 2011 died in the House of Representatives.
Hershael York, former president of the Kentucky Baptist Convention who teaches at Southern Baptist Theological Seminary, said payday lenders have stooped to trying to promote their products in church.
“Last year, payday lenders showed up to Vacation Bible Schools with promotional goody bags plastered with their company logos inviting churches to promote usury to children and their parents,” York, pastor of Buck Run Baptist Church in Frankfort, Ky., said in the Kentucky Coalition for Responsible Lending press release. “We want payday lenders to know that we will not be promoting usury. We will be fighting to end it.”
Some argue that poor people aren’t the only ones who over-borrow and misspend, and the solution is not prohibition but for the financial services industry to come up with ways to make short-term consumer loans more accessible to those who want them.