What can be done about payday lending?
Answer: Your congregation can partner with a local credit union to offer small dollar loans to people who owe predatory lenders money.
The Problem: With more than 20,000 payday loan shops in the United States, according to the Center for Responsible Lending, the predatory lenders are almost as numerous McDonald’s (14,350) and Burger King restaurants (approximately 12,000) combined.
- A typical payday lender charges 400% APR on small loans
- The typical payday borrower eventually pays back $793 for an initial $325 loan
“A Place of Desperation”
Nina McCarthy, who tried to use a payday loan to pay off a car repair, explains what happened to her. “I couldn’t see any other way to do it,” McCarthy said. “And I think that’s what happens when a person gets into a place of desperation. We really don’t think logically.”
The model: Two United Methodist churches in Richmond, Virginia, a state where predatory lenders are especially rife due to a loose regulatory environment, approached a local faith-based credit union for help with the problem.
How it works: The congregation provides a small dollar loan ($500 -$1,000) to church members to use as collateral for obtaining a larger loan from the credit union.
How it got started: Wesley Memorial United Methodist Church is a small, predominately Black middle class church (130 active members), located in low-income neighborhood of Richmond. Most members commuted in from surrounding suburbs, and the membership, with its pastor, Rev. Rodney Hunter, found themselves inundated with appeals for money to pay rent, utilities, food, clothing and other basic expenses, using a mission fund for this purpose. However, the fund proved inadequate to help with larger expenses such as car or medical expenses. So he and the Rev. Charles Swadley, of Lakeside United Methodist Church approached the Virginia United Methodist Credit Union to create a partnership. That’s how the Jubilee Assistance Fund was developed.
How it compares:
A typical Jubilee Assistance Fund loan
- 1 year $500 principal
- 6% APR
- $16 interest
A typical car title loan
- 1 year, $500 principal
- 264% APR
- $953 interest
What the loans are typically be used for: Rent, mortgages, medicine, utilities and food. Jubilee Assistance Fund loans can also be used to refinance a predatory lender loan.
What the borrower must agree to:
- Financial counseling
- Loan monitoring
- Payroll deduction
Scale of the program: So far eight loans have been provided to persons in need, with amounts ranging from $100 to $1,000.
Rev. Rodney Hunter: “We are doing something to alleviate the pain of debt as we continue to urge our legislators for fair and sensible laws for the common working society. Since we started the Jubilee Assistance Fund, our mission’s fund has doubled in income. It is just like the multiplication of the two fish and five loaves (Mark 6:30-44). We have done something.”
Rev. Charles Swadley: “When you give money, you’re not necessarily teaching them how to use the money – you’re responding to the crisis. And what we’ve got to do is teach, which is the harder goal.”
Photo: Frankieleon, March 22, 2009. Flickr Creative Commons.