An unexpected medical bill, car trouble, buying school supplies, a funeral or a summer utility bill – one or many of these expenses have pushed countless Texans to the financial brink.
Needing a way to meet the unexpected expense, many families turn to payday and auto title lenders who are all too happy to profit off of people’s misfortune. This practice is not confined to Texas; it is taking place across the United States.
Usually payday and auto-title borrowers are already financially fragile. Rather than being a lifesaver, these loans become an anchor.
Payday loans are unsecured short-term loans that simply require a job and access to a bank account.
Payday lenders are not required to determine the borrower’s ability to repay the loan and meet their other financial obligations in the way a commercial bank does when it assesses mortgage lending.
The initial term on a payday loan is typically two weeks, with the full amount due by the next pay period.
An auto title loan is secured by the title of a vehicle; the loan term is usually 30 days.
Most borrowers cannot pay loans back by the end of the initial term. Data shows 57 percent of borrowers roll over their initial loan and the average borrower rolls over a loan four times before they pay off their debt.
When combined with interest and fees, the annual percentage rates (APR) can reach more than 500 percent.
For example, a single mother borrows $300 to make repairs to her car. At the end of the initial two-week term, she owes $368.
If she cannot pay this amount, she pays $68 (interest and fees) to rollover the loan another two weeks and she still owes $368.
In this example, if our single mother rolls her loan over four times, her $300 loan will actually cost her $643.
The payday and auto title lending industry, as it currently operates in Texas and states across the U.S., preys on the poor and the vulnerable.
Families trapped in these loans are working people attempting to provide for their families; these loans are pushing them over the financial cliff.
When they cannot pay their utility bills or rent because their payday fees are automatically debited from their accounts, they come to churches and local charities for financial assistance.
Valuable church resources that could be used to build the kingdom are instead going to subsidize the payday and auto title loan industry.
In 2012-13, churches and nonprofits helping borrowers, along with Texas families, collectively paid auto title and payday loan businesses $2.7 billion in fees.
The Bible contains a clear prohibition on usury (charging excessive interest on loans) and instruction on how we are to treat the poor (Exodus 22:25, 1 John 3:17-18, Luke 6:34-35).
Christians need to speak out against the payday and auto title lending industry, which practices usury.
While 22 cities in Texas have passed local ordinances, which provide consumer basic protections, statewide reform is needed to protect everyone from these usurious business practices.
Churches can engage this issue by offering financial literacy classes to members and the community.
They can also inform their congregations about the harmful impact the payday loan industry is having on the poor.
Two resources in Texas are Texas Faith for Fair Lending and Texas Fair Lending Alliance, which provide information about payday loans and explain how to get involved in seeking reform.
Most states have similar organizations, while the national government provides resources through the Consumer Financial Protection Bureau and the Federal Trade Commission.
Ultimately, the state and federal governments must also do their part to prevent an industry from making its profits on the backs of the poor.
The proper role of government is to provide a safe and just environment so that all of its citizens have the opportunity to thrive (Romans 13).
The payday and auto title loan industry preys on the poor and is wreaking havoc on family financial stability in Texas and across the nation.
We need meaningful reforms that end this cycle of financial exploitation of the financially fragile and poor.
Kathryn Freeman is director of public policy at the Christian Life Commission of the Baptist General Convention of Texas. A version of this article first appeared on Texas Baptist Life – the BGCT blog. It is used with permission. You can follow Freeman on Twitter @KathrynAnnette.
