July 27, 2016
There have been lots of not-so-nice adjectives directed at the payday loan industry. Add “sinful” to the list, according to a 2016 survey from LifeWay Research sponsored by Faith for Just Lending.
The study included 1,000 respondents across thirty states who indicated a Christian religious preference. The majority of the states were chosen based on their lack of “meaningful regulation on payday lending.”
Respondents typically used negative terms as common characteristics of payday loans, such as expensive (62%), harmful (33%), predatory (33%), and immoral (11%). In fairness, a few respondents also called them useful (17%), helpful (16%), and timely (7%). (As for the 1% of respondents who called them “inexpensive,” a tutorial on interest rates may be in order.)
The vast majority of respondents (94%) agree that, “lenders should only extend loans at reasonable interest based on [the] ability to repay.” Phrased that way, it is hard to disagree — but what constitutes a reasonable interest rate? Payday loan interest rates are often listed in monthly or even weekly terms instead of yearly terms. What seems reasonable at first glance may be an annual percentage rate in the hundreds.
Where does sin come in? 77% of respondents agreed that it was a sin to loan somebody money for the gain of the lender and financial harm of the borrower. 83% believe that there is a role for churches in alleviating the issues with payday loans, both by acting as teachers and role models for “responsible stewardship,” and by helping neighbors in financial crisis so that payday loans become unnecessary.
While the church has a role to play, so does the government, according to the survey. 86% believe that laws or regulations should prohibit lending at excessive rates — but again, what is excessive? Payday loans charge higher rates because they can carry a greater risk. A follow-up question to explore the definition of excessive rates would have been insightful.
The Consumer Financial Protection Bureau (CFPB) has proposed rules to regulate payday loans, but the major intent is dealing with debt traps, or methods that payday lenders use to persuade lenders to perpetuate and increase their debt. Richard Cordray, the head of the CFPB, notes that too many of these loans are “based upon a lender’s ability to collect and not a borrower’s ability to repay.” State legislatures have also introduced certain controls on payday lender practices.
Payday loan and auto-title lenders may be under attack from both surveys and proposed legislation, but do not expect them to go quietly. According to the Los Angeles Times, they have friends in the legislative branch. The LA Times reports that a bipartisan bill was introduced in the House of Representatives in March (the Consumer Protection and Choice Act) that effectively weakens some of the CFPB’s proposed reforms in the name of providing affordable lending options for lower-income borrowers.
Critics argue that this effort is driven by the payday loan industry, but there is a valid argument about a lack of reasonable alternatives. In the end, even some Christians who are down on their luck have turned to payday loans. 17% of survey respondents said that they had personally obtained a payday loan at some point.
Payday loans do serve a niche with few viable alternatives for most Americans. Until they are either legislated out of existence or less predatory alternatives become mainstream, payday loans are here to stay — sinful or not.
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