Vol. 9, Issue 5: Predatory Payday Lending: A Public Justice Problem

Stephen Reeves, Contributing Editor



8. Predatory Payday Lending: A Comprehensive & Faithful Response

Stephen Reeves

In the mid-1990s, a new industry emerged offering relatively small loans at excessively high interest rates to borrowers struggling to make ends meet. Today, this industry sells the idea that payday and auto title loans can be a short-term fix for immediate emergency needs. In reality, these loans can result in long-term debt, and are regularly used to pay recurring expenses. The high cost of these loans routinely leads to a series of repeat borrowing or a cycle of paying only fees and interest without reducing the amount owed. According to the Center for Public Justice (CPJ), “the principle of public justice recognizes that much of what contributes to human flourishing is not government’s task.” It also recognizes that “much of what contributes to human flourishing is government’s task. Government is authorized by God to promote what is good for human flourishing. This is often referred to as securing the common good–promoting the well-being of an entire society in right relationship with the larger world that God made.” To effectively make this a reality, Christian citizens, people of different faiths and of no faith background must work towards and advocate for legislative change on the local and national level. In this final article of the Predatory Payday Lending series, Contributing Editor, Stephen Reeves outlines how the predatory payday lending industry grew in a time of declining morals, how people of faith and faith-based organizations responded, the responsibility of the government in relation to the issue, and what work remains ahead to help people flourish, promote public justice, and combat predatory payday lending.



7. Faith Leaders and Community Residents Respond to Payday Lenders in Missouri

Robert Reed and Bob Perry

The negative effects of predatory payday lending are becoming increasingly apparent as more and more people seek relief from the cycle of debt. Churches, social service agencies and other charitable organizations within the community often feel the impact of the predatory industry more acutely than other institutions. These are the places where people turn when caught in the grips of crushing payday loan payments and fees. Out of concern for members in the church who had been victims and out of civic, moral, and ethical convictions, an average-sized church in Springfield, Missouri, began working a program of guaranteeing replacement loans. In partnership with a local credit union and other supporters, the members designed a financial services product that would replace the payday loan with one at much lower interest rates. The church took a multi-dimensional approach to their program. Honoring the value and inherent dignity in all people, the program worked to create opportunities for success and flourishing, by providing loan replacements, a client education program and a public awareness campaign, rather than simply providing clients giveaways. The group also participated in advocacy efforts for greater regulation of high-interest lending and won some measures of relief for those crushed in the debt cycle.



6. From Adversity to Progress: A Community-Driven Movement to Reform Payday Lending in Texas

Pastor Steve Wells and Ann Baddour

Reforming payday and auto title lending has been an ongoing and difficult fight, particularly in Texas, where lending practices are a $5.2 billion business. In the face of challenges achieving reform at the state legislature, local leaders decided to take matters into their own hands and adopt an innovative effort to rein in predatory lending practices and promote a fair market. Starting in the City of Dallas–with the leadership of a local city council members and support of community-based organizations, faith leaders, and policy experts–an ordinance was passed to establish basic fair standards for payday lending. Thus, the city achieved what the state could not. This successful effort in one city inspired other cities to take action. Seven years later, 45 Texas cities throughout the state, on a bipartisan basis, adopted what became known as the unified ordinance–local zoning ordinances restricting payday and auto-title lenders. The effort is ongoing, with both legal and legislative attacks, but the broad base of support, built city by city, is persistent. The results of the movement are an improved market. Much work remains to be done, but the ordinance movement shows how government, in partnership with the institutions of civil society, can be effective when working together for the well-being of all citizens in the political community.



5. Combating Predatory Payday Lending: The Faith Community Responds

Sara Nelson-Pallmeyer

In Minnesota, like thirty-three other states, payday lenders can legally offer short-term, small-dollar loans to customers. Payday loans are marketed as helpful and useful tools to address unexpected financial needs. The loans, however, are made based on the lender’s ability to collect, and not the borrower’s ability to repay, so payday loans almost always create a debt trap. Organizations like Exodus Lending and the Center for Responsible Lending, along with coalitions including Minnesotans for Fair Lending and Faith for Just Lending, recognize that predatory payday lending is a community problem and a public justice issue. In this article, Executive Director of Exodus Lending Sara Nelson-Pallmeyer shares public justice principles, policy wins and the stories of those impacted by payday lending, and how concerned Christian citizens ought consider a public justice perspective regarding payday lending in their own community public justice response. 



4. Texas Catholic Conference of Bishops: A Model for Community Action on Issues of Public Justice

Jennifer Carr Allmon

Usury has been a concern of the Church and civil society for millennia. This article outlines ten years of problems, strategies, wins, and losses in Texas as faith leaders and other concerned civic groups have fought for reasonable payday and auto-title lending reform at local, state, and federal levels. Payday and auto-title lenders have a similar business model: market high-cost emergency loans to desperate borrowers. For payday loans, borrowers provide lenders with access to a bank account or Electronic Funds Transfer (EFT), and automobile titles for auto-title loans. This predatory industry receives its revenue primarily from low-income working families. The loans are structured so that a borrower’s inability to repay increases the lender’s profit and deepens the borrower’s reliance on continued extensions of the loan — thereby creating a cycle of debt rather than incentivizing success.   Faith and community leaders in Texas have collaborated using a variety of strategies to address this cycle of debt. These strategies have been developed through a systematic process of gathering data, reflecting on the trends, developing local internal community solutions, and advocating for legislative change. The coalition efforts have been successful in passing local ordinances and state legislation, as well as making progress toward federal regulatory reform. As with all systemic change, the reforms are sometimes slowed down or even rolled back when the payday and auto-title industry lobbyists begin to exert their influence. Yet, advocates remain vigilant as voices for the working families targeted by predatory lending practices. The engagement processes and strategies used in Texas can serve as a model for community action on other issues of public justice as well. 



3. Predatory Lending: A Framing Conversation

Michael Gerson, Katie Thompson, & Stephanie Summers

For some people, a vehicle breaking down is more of a nuisance than it is a crisis. But for others, a vehicle in disrepair sets off a chain of events that often includes missed time from work that results in lower earnings and greater financial instability often resulting in threats of homelessness and/or food insecurity. It is this need that payday lenders purport to fill, although there is clear and mounting evidence that demonstrates the industry’s predatory effect.    Those who are able to easily absorb the impact of a temporary financial shock have what Harvard University professor emeritus Robert Putnam calls “airbags”, that are immediately activated when financial crises strike. These so-called airbags are inflated by a person's social and financial capital that act as cushions when unexpected expenses arise.    But what are the right roles and responsibilities for the government and the institutions of civil society in protecting citizens who don’t have access to what Putnam called airbags? Former assistant to President George W. Bush and Washington Post columnist, Michael Gerson, Katie Thompson, program director and editor of Shared Justice, and Center for Public Justice (CPJ) CEO Stephanie Summers frame the issue of payday lending using normative Christian principles to view payday lending through a public justice lens.



2. That All Might Thrive: The Colorado Ballot Initiative Story

Nathan Davis Hunt

In 2018, a movement with faith leaders at its core known as the Financial Equity Coalition led a state-wide ballot initiative, Proposition 111 (“Prop 111”), that asked Coloradans to end predatory payday lending practices by lowering annual percentage rates from 160 percent to 36 percent. By doing so, they took on an industry earning $50 million in state yearly and followed an ancient Judeo-Christian tradition of standing against usury and all practices that enrich a few by exploiting the poor. This article provides the background context for Prop 111, including why national touted “compromise” regulations from 2010 continued to allow widespread financial injustice that particularly targeted communities of color. It explores theological and social cases for establishing healthy boundaries on payday loans and other financial products. Centrally, this article tells the ballot initiative story, and why fairness in lending holds such widespread popular support. The conclusion highlights opposing trajectories taken by Colorado predatory lenders and the movement for financial equity since the election—particularly the emergence of a multi-faith, politically diverse coalition that now holds weekly gatherings at our state capitol calling for an end to structural racism and the building of a moral economy.



1. Predatory Payday Lending: A Concern for Contemporary Christians

Kerwin Webb

Payday loans are marketed and presented to the public as easy solutions to short-term financial challenges. What many borrowers do not realize until too late, is that the payday loans are easy to get into but are extremely difficult to get out of. This article invites readers to explore the challenges of people who have found themselves in the throes of predatory payday loans and the responsibility of Christian citizens to help address this topic. The good news is that it is possible to end the cycle of debt caused by predatory payday loans and there are individuals, organizations, and agencies doing the difficult work of advocacy and activism. Christian citizens have a moral and Biblical mandate to ensure that the image of God is honored in each person. Public Justice Review (PJR) editor Kerwin Webb, who has experienced the debt cycle caused by payday loans, defines payday loans, discusses the predatory nature and effects of the loans, and invites readers to converge at the intersection of public justice, Christian citizenship and Holy Scripture.