Payday Lending: Five Actions You Can Take

Payday Window Graphics

Millions of Americans without access to traditional financial services rely on check cashers, pawnshops and storefront payday lenders to make ends meet. Payday lenders line the streets of many of our most economically challenged neighborhoods, with names like Easy Money, Always Money and Cash Express.

According to the Pew Charitable Trusts, 12 million Americans use payday loans each year. A borrower typically takes out eight loans of $375 per year and spends $520 on interest.

What are payday loans?

The online magazine Black Enterprise describes it this way:

Payday loans are short-term, high interest rate loans that are typically to be repaid on the borrower’s next payday. The typical payday loan has an annual percentage rate ranging from 391 to 521%. They don’t require a credit check, making them an attractive option to people struggling financially. Usually the borrower writes a postdated check to the lender.  If the borrower does not come in and pay the loan in person, the lender has the option of cashing the check. If the check bounces, the borrower incurs bank fees and costly penalties from the lender. Many borrowers take out additional loans to cover the short fall.

Here are six actions you can take:

1.  Start a Lending Circle. This DIY action is for someone who wants to borrow but may not qualify for a bank loan. A Lending Circle is a group of six to ten persons who agree to pool money for the purpose of providing group members zero-interest loans. Created by the Mission Asset Fund of San Francisco and administered through its partner organizations, the Lending Circle is created, for example, when eight participants to pool $125 each for a $1,000 total, then make small dollar loans to its members. Participants take an online financial training class before joining a group.

2.  Endorse the Principles for Just Lending developed by a broad coalition of Christian faith groups, which calls for an end to predatory lending. Sign online.

3.  Ask your local credit union to start a Jubilee Assistance Fund. The Virginia United Methodist Credit Union started the fund several years ago to keep economically strapped individuals from having to use storefront payday lenders. The Credit Union partners with congregations, which provide a small dollar loan ($500 -$1,000) to church members to use as collateral for obtaining a larger loan. For example, the pastor of Wesley Memorial United Methodist Church in Richmond, Virginia made a loan of $700 to a church member, who for years had relied on payday lenders, allowing her to finally pay off $8,000 in credit card debt.

4.  Educate your congregation about payday lending using the discussion guide, Modern Day Usury: The Payday Loan Trap, which is available from the Center for Responsible Lending’s “Faith and Credit” page.

5.  Host a screening of Spent: Looking for Change, a movie about the people who are “spent” because they are underserved by the financial system, and about what is necessary to change to the system. Sponsored by American Express, the movie is available free and includes a discussion guide.

Photo:  Taber Andrew Bain, “Payday Loan Place Window Graphics,” 5.31.07.  Flickr Creative Commons.

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