A diverse collection of denominational and faith-based organizations are calling on Congress to prohibit usury and end predatory practices of payday lending.
While marketed as short-term loans of two to four weeks to get over a financial emergency, the faith leaders said, unscrupulous businesses lend money banking on the likelihood the borrower will not be able to pay the loan off on time, resulting in rollover loans mounting up debt with annual percentage rates as high as 400 percent.
“Our nation can do better than putting the entire burden on desperate people to ensure they are not being preyed upon by unethical business practices,” the letter said. “Lenders should not be able to take advantage of those who are most vulnerable and who have little or no resources at their disposal. Indeed, short-term loans should help borrowers get out of a financial crisis, not become more deeply entrenched in one.”
Frederick D. Haynes III, senior pastor of Friendship West Baptist Church in Dallas, was among witnesses at a Thursday afternoon hearing on balancing the market need for credit with consumer protection.
Haynes, an African-American pastor whose church is affiliated with the Baptist General Convention of Texas, said he and some of his ministry colleagues became alarmed when buildings in their community once occupied by restaurants and bank branches were taken over by payday and auto title loan stores. In the last 10 years, Haynes said, 20 such businesses have opened up within a five-mile radius of his church.
“It appeared that our underserved and under banked community was being intentionally targeted for these high cost, debt trap loans,” the pastor testified.
Haynes said their concern was confirmed as they heard from church members who acted in desperation to get a loan that eventually became a trap.
“They made payments, every other week or monthly, only to get deeper in debt,” Haynes said. “They were in a financial hole and, upon getting a payday or car title loan, received a shovel instead of a rope.”
Another witness, a previously incarcerated man named Robert Sherrill, said after getting out of prison payday lenders were his only option to borrow capital to help get him back on his feet.
“My family don’t have money like that,” he said. “So to call someone I’m related to to get money is out of the question. So the alternative to that scenario is going to payday loans. I know a lot of people that utilize this service to cash their checks. I did it myself. I still do it from time to time.”
Sherrill, who repaid his payday loans on time and started a janitorial business that is growing and belongs to the Chamber of Commerce and Better Business Bureau, said he fears too much regulation will drive many short-term lenders out of business.
“My thing is, when they take it away what are we going to do?” he said. “Because from the looks of it, I don’t see nobody that looks like they need a loan from a payday place here.”
Haynes said in addition to lobbying for laws regulating bad lenders his church sought to be part of a solution by launching a credit union in partnership with another church in the community that held a federal credit union charter.
Haynes said Liberty Loans now has several years of experience offering microcredit for members who need and are able to afford a small dollar loan without a single default.
“It’s good business,” Haynes said. “It has empowered the powerless. It is moral. We have taken a stride toward economic freedom in Dallas, but we still have a long way to go.”
Haynes said neighborhoods like his want access to credit, but it needs to be quality credit that does not add to the stress of the desperate and needy.
“We don’t want Jesus to say in the judgment, ‘I was hungry and thirsty, and you gave me a payday loan,’” he said.