Predatory Payday Lending: Today's Debt Slavery

PArt TWO: FRAME

By Stephanie Summers

[The following is an excerpt from an upcoming book on opportunity and a version originally appeared on May 28th, 2015 in Comment, a publication of Cardus.]

What if you need $500 to fix your car so you can get to your job, and you don’t have it in the bank?

Depending on your situation, you can put it on a credit card and pay it off when your next paycheck arrives.  Or you can call Mom or Dad who can let you borrow, or even give you the money.

Social and financial capital—access to financial options and a network of friends or family who can easily and quickly share resources with you—act as cushions when the vicissitudes of life strike.

But consider the scenario if you’re poor. The airbags of financial and social capital do not inflate automatically to protect you. You’re not sure how you’re going to come up with the resources you need right now. Your need for a car to keep your job is paramount. Other bills you’re supposed to pay will just have to wait until you figure it out.

And then you see a sign at the end of the repair shop’s counter: Need $500? Tucked inside a plastic display are tri-fold brochures advertising CASH TODAY from a store in the same strip mall.  

It seems to you not just a sign, but a miracle. You have no idea that you’re walking into a trap.

The reasons that someone who is poor might need fast cash and not be able to get it are often not the result of personal sin or outsized wants.

You have no idea that you’re walking into a trap.

Friends and family may be immensely willing to help, but what if they don’t have the financial capital to do so?  Banks don’t tend to extend small loans. Options to get financial help quickly are limited when you’re poor.

Of the 12 million Americans who were trapped in predatory payday loans last year, two-thirds of payday borrowers showed up at a storefront needing a small loan, averaging $375.

Predatory payday lenders advertise to the public that they are providing a short-term solution to a temporary cash flow problem. But loans are made with the full knowledge that those who borrow have little hope of ever being able to repay.  The result is debt slavery. Indebted families are even less able than before their loan to pay their bills, to save for the next emergency, or to provide for their children. 

 Christian philosophers and economists have long argued that free markets are to be just markets.

The reasons that someone who is poor might need fast cash and not be able to get it are often not the result of personal sin or outsized wants.

When rightly ordered, businesses operating in free markets impose limits on their own practices and operations, such that their relationship to the rest of society’s institutions and to human beings reflects the end of satisfaction, rather than the more familiar word maximization regarding the making of profit.

Rightly ordered businesses choose practices that reject profiting from the exploitation of human beings.

Despite their altruistic talking points, predatory payday lenders fail to meet these criteria. 

As Christians, we begin answering that question by looking at three interrelated biblical concepts which God shows us from the very beginning of the world.  Then we can begin to understand how we can respond to the challenges of the world around us.   

Image.  At the creation of the world, God shows us that humans are made in God’s image – and we are to reflect God’s image in every area of life. 

Structure. In creating the world, God laid out the foundational structure of the world. We are made for community, and from that come diverse structures such as family, marriage, church, school, business, government and more. 

Wisdom.  We have been given wisdom for how we fulfill our God-given task in world we live in right now, even though the world is different today than it was at creation.  

This means that when we think of how we can stop lenders from preying on low-income families and trapping them in debt slavery, we have three key considerations to make.  What do we know about God’s character that gives us wisdom for how we might address this challenge?  What are the structures of society, like families, churches, schools, businesses, and government that may have a role in addressing this challenge?  And finally, for the structures of society that have a role, what are their respective responsibilities to address the challenge, based on what we know about God?

Part of the government’s calling is to promote public justice. For elected officials, This includes just treatment of economic activity and markets so businesses thrive and make their fullest contribution to human flourishing. 

In the case of predatory payday lending, government bears responsibility to enact just laws to protect citizens from this domestic injustice.

In fact much of today’s legislation violates this norm. For many legislators in states like Missouri, what has been signed into law is only a cap—set at 75% of the loan value—on the fees for predatory payday loans and a cap on interest allowed by law set at an astounding 1,950 percent APR (compared to say an APR of 19% for a credit card). This is not likely to protect citizens from predatory lending; it is not public justice.

What’s more, reform advocates have documented the financial contributions of predatory payday lenders and their Political Action Committees (PACs) towards the campaigns of state legislators for years.

Ending predatory lending won’t come only from enacting just laws. It must also come through the reform of the church and the reshaping of hearts and minds.

It is right to criticize politicians who fail to uphold public justice and to press for just laws and policies that seek to put an end to predatory lending. But ending predatory lending won’t come only from enacting just laws. It must also come through the reform of the church and the reshaping of hearts and minds.

It is recorded in the book of Acts that the early followers of Jesus sold their belongings, gave the proceeds to the Apostles, and that these assets were then “distributed to each as they had need.” But rather than turning to the church in times of need, borrowers often fear having to rely on others. Borrowers trapped in payday debt say that they sought the loans because they were taking care of their own business. They reported that they did not want to be a burden or become dependent upon other people or the government. 

This is a long way from the church of Acts.

Isaiah 3:14-15 reminds us: “The LORD enters into judgment with the elders and princes of His people, ‘It is you who have devoured the vineyard; The plunder of the poor is in your houses. What do you mean by crushing my people and grinding the faces of the poor?’ declares the Lord, the LORD Almighty.”

What is clear is that churches must change the contours of the conversations with their members about such practices in a way that those participating in perpetuating debt slavery among their neighbors cease their current predatory practices. Citizens must also press for legislative and regulatory solutions that uphold public justice. To do less is to let the degradation of human dignity continue.


Part One: Discover the Problem

Part One: Discover the Problem

Part Three: Engage the Solutions

Part Three: Engage the Solutions