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How Churches Can Protect the Poor Against Predatory Lending
How Churches Can Protect the Poor Against Predatory Lending
Oct 1, 2024 3:15 AM

Near the top of the list of things I despise panies that take advantage of the plight of the poor and desperate. But just above that on my list is something I hate even more: being poor and desperate. That’s why I loathe payday panies that charge usurious interest rates—and why I’m not yet ready to see them abolished.

Here’s how payday lending works. If you have a job (and pay stub to prove it), a payday pany will allow you to write and cash a post-dated check. For this service pany will charge an absurd interest rate. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. So if you need $100, you write the check for $115 and they’ll give you $100 in cash. Two weeks later they cash your check or you can renew or “rollover” the amount—for an exorbitant fee.

Why would anyone agree to such terms? Because they have no other choice. About twenty years ago I made some terrible choicesand found myself in a serious financial bind. The amount I needed wasn’t much—about $200—but without it I wouldn’t have been able to pay my rent. I took out a payday loan that cost me $30 every two weeks. It took about eight weeks to get clear of the loan, resulting in a cost of $120 to borrow $200 for two months.

If you’re middle class and think of it in terms of interest rate, that repayment cost sounds appalling usurious. And it is. But as the poor will tell you, man does not live on APR alone. Having to pay an extra $120 was cheaper than having to find a new place to live. Yes, it was a bad deal. But it was better than all my other choices.

That is why I believe every serious critique of payday lending needs to be panied by a serious proposal to help those who are trapped by such “poverty problems.” An excellent example of an alternative approach is the one offered by Wesley Memorial United Methodist Church in Richmond, Virginia. One of their church members, Nina McCarthy, was initially trapped in the vicious payday lending circle:

Every month for about three years, Nina McCarthy followed the same routine after payday. She’d go into a Check Into Cash near her home in the Richmond, Va., area and pay off an open-end loan for $700 or $800 – and then she’d take out a new one for the same amount, never accumulating interest in the process.

Then McCarthy’s overtime hours at work were cut. With rent, a car payment and a 3-year-old granddaughter to feed, McCarthy didn’t have $700 for Check Into Cash. McCarthy made a partial payment, but interest piled up rapidly, at a rate she recalls was 24.9 percent a month, or a nearly 300 percent annualized rate.

McCarthy estimated she paid more than $1,100 on the bill in the first three-quarters of 2014, including payments that Check Into Cash began collecting directly out of her bank account. Then in September, she had a stroke. She closed her bank account and hasn’t made any payments since.

When she went back to the Check Into Cash store recently, an employee directed her to the collection line that has taken over her account. McCarthy was told she still owes nearly $650 on the line of credit and doesn’t know when she’ll be able to pay it off.

That forced McCarthy to turn to her pastor, Rodney Hunter, at Wesley Memorial United Methodist Church. Hunter helped her borrow $700 so she could make a dent in paying off her mounting credit card debt, then about $8,000.

Here’s how it worked: McCarthy’s church offered funds as collateral so she could qualify for a loan through the Virginia United Methodist Credit Union. McCarthy agreed to repay the loan at an annualized interest rate of about 6 percent – meaning monthly payments of $25 for about 2 1/2 years, drawn right out of her bank account.

McCarthy is one month behind on the church loan, but she’s confident she’ll catch up this month. “I’m real grateful for it,” she said.

The program is called the Jubilee Assistance Fund. In 7 1/2 years, it has helped parishioners of the United Methodist Church secure 14 loans – from $500 to $8,800 – according to Carol Mathis, chief executive of the credit union.

Similar initiatives run by faith-based organizations across the country are shifting the way churches approach charity. These programs offer parishioners an alternative mercial lending agencies, which often charge triple-digit annualized interest rates.

Caring for the poor is not just about food banks and handouts. Sometimes the best way to help those in need is to provide a financial bridge during desperate times that helps them cover short-term situations. If more churches in America were willing to offer such programs there would be much less need for Christians to turn to payday panies. It’s a relatively easy and cheap way for churches to make a profound difference in their congregations and in munity.

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