The conventional payday loan borrower will take out multiple loans during a year’s time. With limits of $500 per loan, the typical borrower could be borrowing amounts totaling $1,000 or more.
But there is absolutely nothing conventional about these loans. Nor does the repayment of these loans follow an economically conventional pattern.
The payday loan borrowers are wage-earners whose financial obligations can barely be met by regular income. For many, there comes an occasion when an unexpected expense occurs and there is no discretionary income. Dipping into savings is not an option because there are no savings. Others borrowers use loans to cover basic expenses in circumstances where the paycheck just doesn’t stretch far enough.
Marketed by a number of different names—payday loan, cash advance, check advance loan, short-term loan, etc.— a payday loan is essentially a short-term, unsecured loan with a maximum amount of $500. To obtain a loan up to the limit, a person need only have demonstrable income and a bank account. Any kind of income — full or part-time job or disability or public assistance check — and a bank in which to put the money, qualifies one for a payday loan. Neither a credit check nor collateral are necessary.
According to a 2014 Consumer Financial Protection Bureau report, 80 percent of payday loans are rolled over or renewed within 14 days. Thus, many borrowers are accumulating fees at such a pace and to such an extent that they end up paying more in fees than they borrowed.
Researchers at The Pew Charitable Trust note in a 2012 report that annually 12 million American adults depend on payday loans to meet their financial needs. According to Consumer Reports, only 4 percent of borrowers make $60,000 or more a year, more than two-thirds of borrowers have annual incomes of less than $30,000, and the remaining borrowers make between $10,000 and $20,000 per year.
But these numbers mask the egregious exploitation of human suffering going on here among those who must avail themselves of payday loans. I speak not only of the exploitation that leads to human suffering (discrimination, un- and under-employment, lack of health care, ineffectual education, inadequate or unaffordable housing, and exigent circumstances), but also that which flows from human suffering (diminished financial capacity, loss of job and/or domicile, and bankruptcy; elevated stress, poor nutrition, and declining health; family tensions, dysfunction, conflict, and dissolution).
Colorado law permits payday lending under the Deferred Deposit Loan Act. This law permits a finance charge of 20 percent for loans up to $300, 27.5 percent for loans between $301 and $500, plus an interest rate of 45 percent per annum, plus a monthly maintenance fee of $7.50 per each $100 loaned, up to $30 per month. In 2016, our state’s Attorney General reported that 207,220 Colorado consumers took out 414,284 individual loans totaling $166,353,683. In the minds of many, these figures demand payday lending reform, and if passed in this fall’s midterm election, Proposition 111 would cap charges on payday loans at 36 percent inclusive of fees.
I suspect the ubiquitous presence of payday lenders and the effect they have on the community go largely unnoticed. Coloradans most certainly do not notice the $50 million a year drained by predatory lenders from the pockets of the state’s most vulnerable residents. In Colorado Springs, there are 24 McDonalds restaurants, 36 Starbucks stores, 52 banks, 64 grocery stores, 89 car dealers, 159 gas stations, and 196 payday lenders — the major portion of which are in a quadrant of the city where low- to middle-income residents live. This gives a whole new meaning to the saying, “taking it to the streets.”
The robust insights that unfold from the Hebrew and Christian scriptures regarding borrowing and lending (e.g., Ezekiel 18:5-9) demonstrate the fundamental concern is less about money flow and more about the conditions necessary for a community to be, and to manifest itself as, a community of justice. In such a community, provision is made for those whose living is precarious, in part because they are economically vulnerable, having little or no economic capacity to maintain let alone advance their lives. The biblical texts do not decry the fact that some have earned, gained, or otherwise acquired economic resources. Rather, they condemn the inattention by the haves to the plight of the have-nots, especially when the economic acquisition is obtained and used exploitatively, fraudulently, corruptly, or unscrupulously, in which case the gain and use are unethical and unjust; they are the fruit of immorality and injustice.
Persons who claim to identify with the Christian tradition ought to be incensed with the economic exploitation of the poor and needy demonstrated by the predatory payday loan industry. There can be no moral justification for their lending practices and the extent to which they relegate their customers to an insidious cycle of debt.
The Rev. Dr. Douglas R. Sharp is a retired Professor of Theology, Religion and Society. He lives in Colorado Springs.