Payday Lending
Rob ChambersPayday lending or check cashing businesses has recently received a lot of attention lately - both in the news and in the MS legislature. A bill has passed in the MS House of Representatives and the MS Senate will be taking it up soon.
Centered around the debate are the conditions or terms a loan applicant must accept in order to receive a small payday loan.
The argument is that payday lenders charge exorbitant fees/interest for loans and do not give the borrower enough time to pay back the loan. As a result, it is also argued that payday patrons often end up in a cycle of debt by entering into additional short-term loans to pay back the initial loan.
The business of payday lending in MS began in 1998, and prior to then the maximum interest rate a lender in MS could charge was 36% APR. But in 1998 the MS legislature passed a law that provided an exemption to the 36% rate cap for businesses who wanted to provide small loans up to $400.
This law enabled payday lenders to charge up to $21.95 for every $100 borrowed over a short period of time - often two weeks but not beyond 30 days. The duration of repayment is typically based on the frequency of an applicants pay period. For example, if an applicant gets paid every two weeks, then the loan period is two weeks. Based on a loan period of two weeks and a fee of $21.95/$100 borrowed the APR is 572%.
In MS there is an obvious demand for small, expedient, short-term loans and for the access to such loans. The payday lending industry is currently serving this niche market. Arguably, a free-market, capitalistic society permits these businesses to operate, but business and economic systems that do not operate under Biblical principles will eventually fail to work fairly to the advantage of customers.
When economic issues intersect moral and social issues (as they most certainly do – the Bible is full of references where Jesus spoke about money) is the church to remain silent? No. In fact, the Christian Action Commission’s designated role is to speak to and inform people of moral and social issues. Payday lending is one of those issues.
We don’t have to look back very far in our nation’s history to see how people were exploited in the name of business and economy for personal, economic gain. Exploitation is one thing but empowerment is another. If there are no judicious checks and balances put in place, people will be taken advantage of – it’s human nature.
But “economic systems based on secular worldviews do not work, as socialism shows. However, unfettered capitalism—a free-market-only approach—doesn’t work either. If we were operating under Biblical principles, our economy would operate with a system of checks and balances similar to how the government operates.” (Source: Imagine a God Blessed America, Land)
When there is a declared disaster in Mississippi, there is already a mechanism in place where the state steps in to prevent businesses from price gouging and taking advantage of people in crisis or in heightened need. It is true that not every person seeking a payday loan is facing a crisis, but it is true that every person who is seeking a payday loan is in financial need – regardless of how much they make.
In Nehemiah 5:1-11, Nehemiah criticizes the lending practices that fellow Jews exacted upon another. Those who had been exiled from Jerusalem to Babylon returned. Many of them had limited financial means and some were taking unjust advantage of them in their time of need. Nehemiah rebuked them and called them to repay what they had taken.
As mentioned above, the MS Legislature exempted payday lenders in 1998 from the maximum usury rate of 36%, and now the lenders charge over 500% APR for small loans up to $400 for two weeks. Where are the checks and balances here? (Some advocates for keeping the rate at an excessive level argue about the rate banks charge for an overdraft check. This is a smoke screen and an argument that’s not even germane to the issue of lending. A bounced check is not a loan.)
Several municipalities across Mississippi have already recognized the lack of checks and balances and have already placed moratoriums of new payday lenders opening in their area.
It is time to close the loophole on exorbitant lending rates to people in need and reenact legislation to limit rates to near pre-1998 rates. Just because something “IS” the way it is – does not mean it “OUGHT” to be that way.
There is a fine balance between Conservatism, preserving the entrepreneurial spirit of business ownership, and the exercise of business ethics/principles that do not extort or place a person in need into deeper hardship. Being pro-business and pro-people/consumer is a balance.
Mississippi payday loan rates/fees are among the highest in the United States. It would be a positive demonstration – not only to Mississippians but also the rest of the nation – if the MS Legislature lowered the rates/fees to be among the lowest, double-digit rates in the nation and the time for loan repayment extended to at least 30 days for all payday loans.