Churches are using political pressure and small dollar lending to combat predatory payday loans


(RNS) – Anyra Cano Valencia was having dinner with husband Carlos and her family when there was an urgent knock on her door.

The Valencias, pastors of the Iglesia Bautista Victoria en Cristo in Fort Worth, Texas, opened the door to a desperate, overwhelmed church.

The woman and her family had borrowed $ 300 from a “money shop” that specialized in short-term, high-interest loans. You couldn’t repay the amount quickly while the lender added fees and interest. The woman also took out a loan on the title of the family car and borrowed from other short-term lenders. When she came to the Valencias for help, the debt had grown to over $ 10,000. The car was about to be repossessed and the woman and her family were at risk of losing their homes.

The Valencias and their church were able to help the family save the car and recover, but the incident alerted the pastoral duo to a growing problem: low-income Americans trapped in an endless credit cycle. While the profits for lenders can be substantial, the burden for families can be devastating.

A number of churches are now lobbying local, state, and federal officials to limit the reach of such credit operations. In some cases, churches offer small dollar loans to members and the ward as an alternative.

The opposition is not universal, however: earlier this year, a group of pastors in Florida campaigned with state lawmakers to allow a payday loan company, Amscot, to expand.

An estimated 12 million Americans borrow each year from businesses that offer “payday loans,” which are billed as cash advances to bridge workers until their next paycheck. The vast majority of borrowers compiled by are 25 to 49 years old and earn less than $ 40,000 a year.

The promise of quick cash may seem tempting, but people who live from paycheck to paycheck are often unable to repay quickly. In Garland, Texas, northeast of Dallas, Pastor Keith Stewart of Springcreek Church said a third of people who came to his ward for help identified payday loans as a problem in their lives.

The lenders, Stewart said, “set a credit trap and keep people in perpetual payments.” He said he was frustrated that his church would help people with food or rent only to be left as booty to lenders.

And for Frederick Douglass Haynes III, who heads the 12,000-member Friendship-West Baptist Church in Dallas, the trigger was that a local nursery was replaced with a “money shop” offering payday loans. A similar remodel of a nearby restaurant and the conversion of a bank branch into a car loan shop followed, he said.

“In our community alone, within a five mile radius, there were 20 to 25 payday loan and / or auto title stores,” recalls Haynes.

Another surprise came when he saw the interest rates that the lenders were charging. “The highest value I’ve ever seen is 900 percent; lowest is 300 percent “a year, he said. Officially, state usury laws generally limit the amount of interest that can be charged, but loopholes and fees drive the effective interest rate much higher.

For Haynes and Stewart, part of the answer was clear: Local officials had to set limits on lenders. In Garland, Stewart and 50 members of the 2,000-strong Springcreek parish testified at a city council hearing that Garland officials restricted what lenders could charge and how they could renew loans.

Payday lenders were quickly moving to other communities, Stewart said, but the activism of him and others managed to get those communities to regulate lenders as well.

In Dallas, Haynes said he was struck when those trapped in the payday loan situation asked, “What alternatives do we have?”

“It’s one thing to curse the darkness and another to light a candle,” said Haynes. “I cursed the darkness great, but there were no candles to light.”

The Friendship West pastor then found out about the Nobel Prize-winning work by Muhammad Yunus, whose microcredit concept has helped millions in Bangladesh. Haynes believed the church needed a micro-loan fund to help those in need.

The Church now operates the Faith Cooperative Federal Credit Union, which offers checking and savings accounts, as well as auto, mortgage, and personal loans. Among the personal loans are small dollar loans to replace those offered by payday lenders, Haynes said.

Small dollar loan interest rates range from 15 to 19 percent, depending on the borrower’s credit rating, he said. Although higher than a line of credit for a home equity loan, for example, the interest rates are only a fraction of those charged by the money stores.

“We have over $ 50,000 in small dollar loans and the rate of customers who pay back their loans in full is 95 percent,” said Haynes. “We show that people simply need an opportunity without being taken advantage of. If they get a chance, they are responsible. “

Haynes said the credit union has helped members of his church beyond those in need of a short-term loan.

“We have freed people trapped in debt because they have access to this alternative,” he said. “Then they open accounts and set out on their way to not only financial freedom but also financial empowerment. The energy our church has put into the credit union has been a blessing, and the credit union has been a blessing because it has benefited so many people. “

Churches in other congregations are taking up the idea of ​​making resources available to those in need. At La Salle Street Church in Chicago, senior pastor Laura Truax said the group raised $ 100,000 to a small dollar loan fund. So far, the group has issued nine such loans and wants to expand its work.

The National Hispanic Leadership Conference, based in Sacramento, California, regularly brings the issue to state and congressional lawmakers, said Gus Reyes, the group’s chief operating officer.

“You have to keep pushing,” Reyes said. “There’s a lot of money behind it (payday loan) because it generates income” for the lender.

“But it takes advantage of the marginalized. Since we have a heart for these people, this is an important topic for us. “


Article originally published by Religion News Service. Used with permission.

Courtesy Photo: RNS /Taber Andrew Bain / Creative Commons

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