When Pastor Chad Chaddick was ordained, he expected to be a teacher, a caretaker of the sick and elderly, a counselor and an evangelist to his community.
But a phone call four years ago about a financially desperate church member unexpectedly propelled Chaddick to add political activist to his list of pastoral duties.
The member was a father of 6 and a provider for a 10-person household who had taken out a payday loan and risked losing his home because he had been drained of $1,400 in interest and fees without making a dent in paying back the $700 principal. He turned to Chaddick's Northeast Baptist Church of San Antonio for help.
“That can’t be legal,” recalled Chaddick, who ended up joining a growing group of religious leaders who offer advice and lobby for stricter regulations on the burgeoning business of payday lending.
Payday lenders, who say they are often the only option for high-risk borrowers, have become as ubiquitous as Starbucks and McDonald's since many states repealed traditional usury laws in the 1990s, according to Rachel Anderson, director of faith-based outreach at the Center for Responsible Lending. But the increase in payday lending is a worrying trend for church leaders who view high-interest lending as an immoral practice. In response, faith leaders from various religions and denominations are branching into political activism, financial education and lending to prevent members from resorting to high-interest payday loans.
“From pretty early on, as payday lending began to grow, churches were the first people sounding the alarms that predatory lending was a problem,” Anderson said. “The Bible speaks very strongly against unjust lending and taking advantage of others through debt. (The way payday loans trap) vulnerable people through debt really offends scriptural and religious teaching.”
In the process of helping the family in need, Pastor Chaddick was recruited to testify in front of Texas House and Senate committees. His local political efforts helped to pass a San Antonio ordinance that limits payday loans to 20 percent of a person's income. It’s a small victory for Chaddick, who continues to fight for further regulations statewide.
State laws on payday lending range from complete prohibition to no limits whatsoever, said Stephen Reeves, coordinator of advocacy at the Cooperative Baptist Fellowship. Legal interest rates can be as low as 36 percent and as high as 1,000 percent.
Advocates argue that such high-interest rates and other fees can turn one loan into a series of multiple loans that ensnares a borrower into a cycle of debt impossible to repay.
"It’s a form of servitude for people who get trapped in excessive debt," said Chuck Bentley, CEO of Crown Financial Ministries.
A verse in the Old Testament book of Leviticus commands one to "not lend him your money at interest." Both Jews and Christians, who share the text, oppose usury, a Biblical term for predatory interest rates. Usury is also forbidden under Islam; the book of al-Nisa in the Quran warns that those who practice usury will face “painful retribution.”
Faith leaders have responded by working across religious divides to change lending laws. In November, 80 faith leaders and consumer advocates gathered at a conference organized by the Center for Responsible Lending in Washington, D.C. They hope to influence the Consumer Financial Protection Bureau in proposing legislation that caps interest rates at 36 percent nationwide.
“We see (political advocacy on payday lending) as an extension of our faith, our concern for the poor and vulnerable,” said Dylan Corbett, outreach manager for the U.S. Conference of Catholic Bishops.
Various faith groups, such as the St. Louis-based Metropolitan Congregations United, are also working to educate the public and influence state legislation.
The work of the religious community in raising awareness and calling for policy reform “predates the work of the Center for Responsible Lending,” Anderson said, noting that religious groups had previously worked fairly independently. “One of (the center’s) roles is to connect those leaders so they can band together to address this issue.”
Payday lenders see themselves as an option for people with poor credit who have nowhere else to go. Sometimes, they argue, a payday loan is the "smartest option when consumers consider the often higher costs of bouncing a check, paying overdraft protection fees, or incurring late payment penalties," Amy Cantu, spokeswoman for the Community Financial Services Association, a trade group that represents payday lenders, wrote in an email.
There is a great need for short-term credit to help millions of Americans who are living paycheck to paycheck, she explained. Industry numbers support that claim. CFSA analysts estimate that 19 million American households take out $38.5 billion in payday loans annually.
"Lenders who are members of CFSA are regulated and licensed, and they uphold a strict set of mandatory best practices that ensure important protections for consumers," Cantu said. "This includes an extended payment plan — at no charge — for any borrower who may want more time to pay back their loan.”
The current Jewish calendar is in the year of shmitta. Once in seven years, the Bible "commands the land to be left fallow and debts to be canceled,” said Rabbi Ari Hart, co-founder of the Jewish social justice organization Uri L’Tzedek. It's a verse in Deuteronomy that both Jews and Christians share, he said. People follow that commandment by erasing debt from their lives and communities.
Hart is helping believers and non-believers through the process of shmittat kessafim, or the release of money, by offering financial literacy training and seminars on debt and money management at synagogues and community centers in New York City.
Motivated by the rise of payday lending, other faith leaders are teaching similar financial principles from their pulpits and in weeknight classes.
Crown Financial Ministries is a nonprofit, interdenominational organization that provides financial education materials to churches. “Over the last 40 years of our existence, around 150,000 churches in the U.S. alone have used some form of our teaching materials,” Bentley said.
The Liberty Baptist Church in Hampton, Virginia, uses Crown materials to hold multiple financial education courses throughout the year.
“We teach Biblical principles of money and what God wants us to do with the money he has entrusted to us,” said Gerald Compton, the church coordinator for the Liberty Baptist Church. God’s principles are to “spend less than you earn, create a savings plan, and then use the resources to minister to your family and to the community in which you live.”
While faith-based advocates say that payday lending burdens families with unmangeable debt, the CFSA website says that 90 percent of payday advances are repaid when due.
Payday loan alternatives
Many churches have benevolence funds to help church members in need. In some churches, benevolence funds are restricted to paying rent and utility bills or buying food. For other churches, benevolence funds also include small cash handouts to those in desperate situations.
Seeing a need, some churches are expanding beyond charitable giving and entering the realm of small loan lending.
Providing alternative loan products “is a difficult thing for a church to do. Some churches have done it successfully, but they’re often very big, very sophisticated churches with a lot of resources,” Reeves said.
Jewish synagogues have long provided interest free loans to their members. Members of the Jewish faith who are mired in debt can seek financial help from their rabbi or from organizations such as The Hebrew Free Loan Society.
In January, as a direct reaction to predatory lending in the United Kingdom, the Church of England opened a churchwide credit union that offers low-interest loans to its parishioners, the Deseret News National reported.
Churches that cannot afford to create their own financial institutions “often pair with or refer folks to a local community credit union,” Reeves said.
The Catholic Holy Rosary Credit Union, based in Kansas City, Missouri, was initially established in 1943 as a trustworthy financial institution for immigrants. In 2009, Carole Wight, president of Holy Rosary, saw the need for an alternative payday-lending program.
“All you need to do is work in a financial institution and you see that (payday lending) is a huge problem,” Wight said. “It’s the saddest thing in the world. Once you get into that spiral, there’s no getting out of it. I tell people, 'if you’re hungry, don’t get a payday loan because you’ll be hungry forever.'”
As an alternative, Holy Rosary provides low-interest alternative payday loans and payday loan consolidation. It's an expensive but needed service, Wight said.
"Providing payday lending alternative loans is the hardest thing I’ve ever done. It doesn’t pay for itself,” she said. “If Catholic charities didn’t help us, we couldn’t continue.”
That religious groups across the country are working together to develop alternative loan services from within chapels, cathedrals, mosques and synagogues signals how serious faith leaders are in combating commercial payday lending.
“To me it’s a testament of how harmful these products have been in these communities,” Reeves said. “If churches are going to take this incredible step to become lenders, then things must be real bad.”
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