Payday Loans

Payday Lending

The Board of Directors of SD Faith in Public Life studied the payday lending industry in 2015-16. The Board interviewed representatives of the banking industry, payday loan industry and credit unions. Consumer credit counselors, who work with families caught in a cycle of debt from payday loans, shared their experiences and views with us. We examined the scriptures and teachings of our Jewish, Christian and Muslim faith traditions, all of which share a common call to avoid exploitation of the poor.

We found agreement around this statement: Responsible lending is a moral issue. Loans with triple-digit interest fees and short-term repayment periods that routinely trap vulnerable borrowers in a cycle of debt are unacceptable. Religious leaders have a responsibility to bring these hurtful practices to light, and to work toward ending payday loan practices that exploit the poor.

See the full text of our statement:

A Moral Response t o Payday Lending South Dakota Faith in Public Life, December 2015

The Board of Directors of SD Faith in Public Life has completed a one-year study of Payday Lending. We have interviewed representatives of the banking, credit union and payday loan industries, and talked with consumer credit counselors who work with families caught in a cycle of debt from payday loans. We have examined the scriptures and positions of our Jewish, Christian and Muslim faith traditions. After spending time in dialogue we have found agreement around this statement:

Responsible lending is a moral issue. All of our faith traditions share a common call to avoid exploitation of the poor, on the basis of three principles.

1. All persons are worthy of respect and protection because each one is created and loved by God.

The sacred texts of our faith traditions call us not only to love our neighbors and keep them from harm, but

also to go out of our way to help and provide for those who are in need.

2. Those who have more are called to greater responsibility for those who struggle for life'sbasic

necessities.

3. The sacred texts of our faith traditions speak out against excessive interest and financial arrangements

that take advantage of the poor for the benefit of lenders.

Our faith traditions inform and challenge our perspectives on payday lending. W e are called to:

1. Avoid making assumptions about those with limited resources who need emergency short-term loans.

These borrowers are often low- or moderate-income earners who have bank accounts but lack access to

credit because of low earnings or weak credit history.' We are called to seek to understand rather than

judge our neighbors.

2. Reject hurtful practices that exploit the poor. Although payday lenders provide high-risk loans to an

underserved population, thus providing a valuable service to a small percentage of borrowers who can

afford to repay their loans on time, 76% of borrowers need to take out another loan to repay the first loan

or because repayment left them with inadequate funds for basic needs. Borrowers quickly become locked

into a cycle of debt for loans routinely carrying a 400% APR (annual percentage rate). This "churning" of

existing borrowers' loans every two weeks accounts for three-fourths of all pay dav loan volume.? Loans

with triple-digit interest fees and short-term repayment periods beyond the borrower's capacity to repay

are unacceptable. Lending practices that routinely trap vulnerable borrowers in a spiral of loss are

unacceptable. Religious communities and their leaders have a special responsibility to bring these

hurtful practices to light.

3. Look for faith-based solutions and improved public policies that address the needs of our neighbors who

have run out of financial options and are unable to provide for their basic needs. These policies should give

them a lift rather than a millstone of debt.

We challenge our community to reduce the harms of pay day lending by working in these areas:

1. Education. Faith communities need to educate themselves about the dangers of payday loans, teach

financial skills and responsibility, and promote awareness of non-profit credit unions and other lenders that

give access to personal loans with low interest rates and reasonable repayment periods.

2. Alternative Loan Programs. Faith communities and coalitions may be able to develop alternative loan

programs. An example is Exodus Lending, a Minneapolis nonprofit begun by Holy Trinity Lutheran Church.

Exodus Lending refinances payday loan debt while simultaneously offering financial counseling and

relational accountability to increase financial independence.3

3. Federal Regulation and Legislative Change. Faith communities can advocate for federal regulation of

payday loans, calling on the Consumer Financial Protection Bureau and the FDIC to regulate payday

lending in ways that limit its worst excesses. Current efforts are aimed at capping interest rates, requiring

lenders to consider a borrower's ability to repay, and requiring longer repayment periods. Multiple

interfaith coalitions representing hundreds of faith groups and other community organizations provide

models for this advocacy.'

Faith communities need to call on lawmakers to develop alternative lending sources, either through enhanced incentives for existing banks and credit unions or by other creative means.

1. https://www.americanprogress.org/issues/economy/report/2015/06/09/114562/responsible-credit-is-an- economic-and-moral-issue/. Accessed Nov. 11, 2015.

2. www.responsiblelending.org/payday-lending/research-analysis/phantom-demand-final.pdf. Accessed Nov. 11, 2015.

3. www.exoduslending.org/ and www.washingtonpost.com/news/get-there/wp/2015/01/09/churches-step-in-

with-alternative-to-high-interest-small-dollar-lending-industry.Accessed Nov. 11, 2015.

4. See for examples: Letter to the federal regulatory officers from a coalition of more than 150 faith groups and

nonprofit organizations at http://www.responsiblelending.org/payday-lending/policy-

legislation/regulators/Renewed-Call-for-Federal-Action-Against-Bank-Payday-Loans.html;

The United States Conference of Catholic Bishops http://www.usccb.org/about/justice-peace-and-human-

development/catholic-social-ministry-gathering/upload/2013-02-Predatory-Lending-Backgrounderpdf;

The Virginia Interfaith Center for Public Policy http://www.virginiainterfaithcenter.org/;

The Minnesota Joint Religious Legislative Coalition http://www.jrlc.org/payday-lending-resources;

The Kentucky Coalition for Responsible Lending https://kyresponsiblelending.wordpress.com/.

Accessed Nov. 11, 2015.

5. http://nyti.ms/1WjOBfY and http://cbfblog.com/2014/12/17/cooperative-baptists-urge-congress-to-support- payday-loan-reform/. Accessed Nov. 11, 2015.

In August, 2016 this statement was shared with the press and distributed to clergy throughout the state through denominational offices and ministerial groups.