Say the words “payday lender” and stories of friends, family members, or neighbors who sought quick loans to make ends meet and ended up caught in a devastating cycle of debt will begin to flow. Often, these stories begin with someone living paycheck to paycheck and unsure how to make a rent payment, buy food, pay bills, and cover other expenses short term. The tales end with harassing phone calls and court filings for repayment of ridiculously high-interest rate loans, and mounting debts that now include court costs.
As Catholics, we are called not only to empathize with these stories, but to act to protect the poor and vulnerable who find themselves preyed upon by unscrupulous businesses.
Prohibitions against charging outrageous interest on loans go back to Babylonian times. More than one Old Testament prophet condemned usury, along with exploitation of the poor. Yet usury not only persists in our modern economy, it prospers. In 2010, there were an estimated 19,700 payday loan stores in the U.S. (That number does not include Internet loan sources. A recent federal agency report found at least 332 separate Internet loan providers). Thirty-two states permit loans with triple digit or no caps on the amount of interest the lenders may charge.
The Catholic Catechism insists that “economic life is not meant solely to multiply goods produced and increase profit and power; it is ordered first of all to the service of the entire human community.”
In theory, payday lenders provide a service to individuals who are often barred from traditional bank loans. In practice, however, these loans are vehicles for exploiting people already in a highly vulnerable financial state. In a typical payday loan transaction, the customer seeks to make ends meet until the next paycheck, or maybe two. Unlike a traditional loan, however, the individual will not sit down with the lender and determine a reasonable repayment structure based on ability to pay. The customer will not be able to bargain for a better rate or realistic payment plan. Instead, the astronomically high interest rates (the national average is above 400% per loan), fees and payment schedule will be based solely on the needs of the lenders.
In short, the loan is all about the profit of the business, rendering the persons seeking help, in the words of Pope Francis, “as consumer goods which can be used and thrown away.”
The social doctrine of our faith compels each of us to be involved in changing such an unjust system. We can raise our Catholic voices to remind payday lenders that their customers are first and foremost human beings, not profit centers. We can insist that our state and federal governments establish reasonable limits on the actions of the lenders to ensure they are not “so powerful as to reduce the [consumer] to subservience.” Now, as the Consumer Financial Protection Bureau considers regulations to address some payday lending abuses, is an opportune moment to challenge our congressmen and women to take additional actions against usury to protect the working poor, as our Pope and our doctrine urge us to do.
Jean Hill is Government Liaison for the Catholic Diocese of Salt Lake City. Salt Lake City, Utah.