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There is no financial freedom or justice with payday loans

People publicly speak and debate on a wide variety of issues. From sports to fashion, entertainment or even politics, a jocular banter engages people from all walks of life. But when it comes to personal financial challenges, most people are prone to keep those concerns within their households – with a notable exception: their pastor.

As a minister, I have heard the pleas of those who have been trapped into insurmountable debt. It is sad but true that often no more than a few hundred dollars became a turnstile of debt that grew deeper with every payday loan renewal and its mounting, triple-digit interest and fees.

warren-stewart-jr

Warren Stewart, Jr.

Voters in Arizona wisely understood the harms caused by payday loans when they went to the polls in November 2008. Together, Arizona voters decidedly spoke on a referendum. As a result, voters accomplished what the state Legislature either could or would not do: cap payday loan interest rates at 36 percent. More than 60 percent of the electorate agreed.

I am proud that Arizona business leaders stood with the electorate in ending usurious lending. The state Chamber of Commerce, along with others in Phoenix and Tucson agreed that payday lending sullied the well-deserved reputations of businesses who earned loyal patronage through their value-priced goods and services.

Since our 2008 referendum, no state in the nation has given legal sanction to high-cost payday loans. Arizona joined 13 other states and the District of Columbia to cap payday loan interest rates.

In a democracy, no industry nor organization should violate the will of the people.

I am therefore chagrined that Rev. Jarrett Maupin, a clergyman and president of a community-based service organization, would choose to publicly defend predatory lenders to the point of invoking the name of the late Dr. Martin Luther King. Dr. King believed in and gave his life to the pursuit of freedom, justice and equality.

There is no financial freedom or justice with payday loans. Instead these financial bottom feeders prey upon people with the fewest financial resources.

As loans are renewed, or ‘churned,’ every two weeks, unsuspecting borrowers deepen their debt. According to research by the Center for Responsible Lending, each year payday loans cost $3.5 billion in fees alone. Thankfully, Arizona voters put an end to these payday loans, but our communities are still plagued with car title loans that reach rates as high as 200% interest.

The Consumer Financial Protection Bureau is working to reign in the abuses of payday and car title lenders nationwide. And while they can’t set rate caps like the citizens of Arizona did, they can require that lenders actually determine if a borrower has the means to repay a loan considering their existing income and expenses – a basic principle of lending called “Ability to Repay.’ Examining a borrower’s ability to repay isn’t an extreme proposition. It’s just good business.

Instead of working to undermine the CFPB and prop-up predatory lenders that drain our neighbors and communities of their wealth, leaders of conscience should instead work to make sure that the CFPB creates a rule that financial predators can’t game, and ensure that the will of the people of Arizona is respected.

Prior to beginning the rule-making process, the CFPB sought public input on payday and car title lending from consumers and businesses alike. In public settings in Alabama and in Tennessee both perspectives were given the opportunity to speak. Since then, CFPB has accepted additional comments and engaged with business leaders before offering a draft rule. Time and time again, the message from current and former borrowers has been the same – they thought that the payday loan was a life raft. Instead, it was an anchor.

It is noteworthy that some years ago, the Pentagon and Congress agreed to protect our military from predatory lending, such as payday and car title loans, and capped interest rates at 36 percent. Arizonans deserve the same protections that the men and women in uniform already have,

Clergy and lay people alike often encourage believers to light a candle against the darkness. When it comes to predatory lending, such as usurious small loans, I pray that light will shine.

Warren Stewart Jr. is pastor of Remnant South Phoenix Church

3 comments

  1. Isn’t coincidental that this ame predatory practice thrived on desperate new arrivals (migrants) to the country in the 20’s and 30’s and is thriving under the same circumstance.

  2. Predatory lending is just plain bad. The amount of interest charged is abusive and just adds to the cycle of poverty that impoverished communites are already up to their ears in. However, the root cause is our outdated credit reporting system that actually thinks it makes sense to report derogatory information for 7 entire years. Thereby denying working people access to even a $500 Visa or Mastercard. Its time for a change. Congresswoman Maxine Waters has already proposed changing the reporting time to 4 years.
    But much of what is reported on credit reports shouldnt be allowed at all. Utility bills, car repossessions should be 2 years at the most. (They have the car back, why should they be part of denying opportunities to people for years afterwards) Our present credit reporting system is the largest factor even more than the payday lenders in creating and maintaining longterm poverty. We live in a credit based system. Credit is used for everything and with credit scoring(the secret form of mathematical discrimination against working people) the ability to climb the economic ladder is greatly hampered.

  3. Unless there are alternatives to replace the payday lenders making loans to these people in need, we’re only making life more difficult for those them. It’s not like the problems that send people into these payday loan stores have gone away, is it? We might pass all kinds of laws, but unless we create viable alternatives for folks, their situation remains precarious.

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