By Rick Hardison
Chair, KBC Committee on Public Affairs
Pastor, Great Crossing Baptist Church, Georgetown
I want to invite you to join me in an effort to curb the effects of the payday loan industry.
Payday loans are “short-term” loans where borrowers get, say, $500 in cash, and two weeks later they have to give the lending company about $589 to settle the debt. If they don’t have the money, they can take out another loan – then another, and another, and so on. I recently went by a payday loan company in Georgetown and looked at the interest rates. They ranged from 300 percent to more than 500 percent APR (annual percentage rate).
This financial product is unwise and harmful because it traps borrowers in devastating cycles of debt. Scripture says, “The borrower is slave to the lender” (Proverbs 22:7), and that is particularly true with this type of loan. The average Kentuckian who gets one of these loans ends up having to take out 10 loans before he is able to pay it back completely. That’s 20 weeks in debt to a loan at more than 300 percent APR. Only 1 percent of borrowers succeeded in paying their loans back in first two weeks. Therefore, these loans are not short-term loans; they are long-term debt traps.
I regularly talk to people who are facing financial hardships – bankruptcy, eviction notices, no food in the pantry, utilities that are about to be cut off. When people are in a tight spot, they get desperate, and the payday loan industry leverages this desperation by offering products that are unwise and suck people in.
Therefore, I believe one way to love our neighbors is to provide consumers with protections against payday loans. The Kentucky Senate is currently considering a bipartisan piece of legislation (Senate Bill 32) that would cap interest rates for payday loans at 36 percent. Right now, Kentucky usury laws prohibit most companies from charging more than 36 percent, but payday loans have been given a special exemption. If passed, Senate Bill 32 would force payday lending companies to conform to the same rules everyone else already has to follow.
Here’s what I’m asking: First, please think about this issue and consider what loving your neighbor looks like. Second, consider calling the legislative hotline to express your support for Senate Bill 32. That number is (800) 372-7181. An operator will ask for your name and address, then will record and pass along your message. Please request that the message be delivered to Senate leadership, because that is who is currently keeping the bill from coming to the floor for a vote. It takes about one minute to make the call.
I realize some feel unsettled anytime a pastor mentions anything about the political world; I do, too. I am also aware that good Christians may disagree with this bill because it may feel like too much government regulation; or because people may lose their jobs; or because they may have seen positive examples where these loans actually helped someone for a time. Thus, I’m not trying to outline THE “Christian position” on payday lending.
But the Bible does call us to fight oppression, and the normal impact of these loans is to oppress and trap. So loving our neighbors sometimes means favoring laws that promote compassion and opportunity, not cycles of debt that seem impossible to escape.
For good reason, Kentucky Baptists passed a resolution in 2011 seeking to cap payday loans.
If you want to learn more about this issue, visit the Center for Responsible Lending’s website.