Churches Lobby for Limits and Provide Alternatives to Payday Loans
Inside Subprime: Nov 16, 2018
By Lindsay Frankel
Churches around the country are lobbying to limit predatory lending, and some places of worship are even providing payday loan alternatives to their members and the local community.
Friendship-West Baptist Church in Dallas, Texas now issues loans through Faith Cooperative Federal Credit Union. Pastor Frederick Douglass Haynes III was inspired by the work of Muhammad Yunus, whose Nobel Prize-winning microloan idea provided financial assistance to millions in Bangladesh. He learned of the concept after watching payday lenders and title lenders invade his own community. First, a plant nursery was converted into a payday lending storefront, and then a nearby bank was taken over by a title lender. Haynes began to recognize the twenty to twenty-five predatory lenders in his local community as a major problem for members of his church.
At another church in Garland, Texas, Pastor Keith Stewart noted that about one third of people seeking help from the congregation said payday loans were causing problems in their lives. Stewart expressed his frustration over payday lenders’ tendency to trap borrowers in debt. Four out of five payday loans are renewed within 14 days or rolled over, according to the Consumer Financial Protection Bureau. In most cases, borrowers end up paying more in interest and fees than the principal of the loan.
Haynes said he was shocked by the interest rates charged on payday loans, which ranged from 300 to 900 percent annually. While many states place limits on interest rates for payday loans, lenders have found loopholes that allow them to charge much higher annualized rates. And in other states, few regulations protect borrowers from these risky loans. For example, the average annual interest rate on a payday loan in Texas is 454 percent, according to 2016 data from Pew Charitable Trusts. Under Texas law, there is no limit to what payday lenders can charge.
Stewart would not tolerate the financial harm payday loans caused for members of his community. After Stewart and fifty Springcreek Church members testified at a City Council hearing, Garland officials passed the Texas Municipal League Model Payday Ordinance. It didn’t take long for payday lenders to begin closing down shop after the new limits went into effect.
Haynes said he was particularly moved when those caught in a debt trap from payday loans inquired about alternatives, which were lacking before the credit union was established. “It’s one thing to curse the darkness and another to light a candle,” Haynes said. “I was doing a great job of cursing the darkness, but there were no candles to light.”
Now, Faith Cooperative offers checking and savings accounts along with mortgage, auto, and personal loans, which include small-dollar alternatives to payday loans. Interest rates on these loans range from 15 to 19 percent, a mere fraction of the triple digit annual interest rates typically charged by payday lenders.
“We’ve given out over $50,000 in small-dollar loans, and the rate of customers who pay back their loans in full is 95 percent,” Haynes said. “We’re demonstrating that people just need a chance without being exploited. If they’re given a chance, they’ll be responsible.”
Other churches are also dedicated to providing community members with safer alternatives to payday loans. LaSalle Street Church in Chicago has already issued nine loans from a dedicated $100,000 fund, and senior pastor Laura Truax said the group hopes to help more people in need. And in Ohio, The Society of St. Vincent de Paul Diocese of Columbus provides loans of up to $500 with comparatively low interest rates. The trend illustrates an opportunity for alternative institutions to offer loans that are financially empowering for low-income borrowers.