Go, Rev-Sue!

These predatory practices are just a localized version of the predatory banking practices in our economy. At one time, these people were called "loan sharks". They hung around the street corner selling usuary like it was heroin. Now they are franchises.

This is precisely what the church should be combating in the poor neighborhoods, and we should also be in the biz of offering alternatives, like fair wages and our own faith-community lending programs.

If faith-communities pooled their money together and loaned money at zero interest, how long would the loan sharks survive?

Kevin McGrane

Very glad to hear of the work of the Rev. Susan McCann with Missourians for Responsible Lending. It may be a long struggle, but it's an important one. This is a great way for our local congregations to be involved in advocacy that will make a difference on the ground. Faith-based witness against usury can be very powerful.

We passed resolution A081 at General Convention this past summer, calling for bishops, dioceses, and local congregations to advocate for credit lending reform, including --

• Creating stricter usury laws and regulations that establish the principles of fair loan structures, fair repayment schedules, and interest rates such that debts can be repaid in a timely manner without crushing the debtor; and

• Eliminating loopholes in usury laws and other regulations that allow for and sustain predatory lending practices.

The National & International Concerns legislative committee heard terrible stories of the impact of predatory lending on our low-income communities and families. We were told that stricter laws, such as those in place in New York, do make a big difference.

The full text of the resolution can be found at www.generalconvention.org. Search under resolutions by resolution number (A081).

The church's pockets would soon be empty if the church loaned at zero interest.

I agree that the payday loan industry preys on people. They prey on ignorance, desperation (as when you lose a job and have no where to turn), impatience, the desire to live like the Jones, weakness to temptation.

I'd like to know how profitable this industry is -- is making really bad loans only so of which are paid back. We're talking about borrowers that have been labeled and likely earned the label poor credit risk.

The church's largest task is to educate people so that they are less likely to be preyed upon. Starting with teaching some basic personal finance.

But like getting people to join your church, how do you get people to come to your class on personal finance?

Sarah: Thank you for citing the resolution. I was not aware of it! I will read it. It is very encouraging that the convention recognizes the problem.

John: “Empty pockets?”…Ummm, not necessarily. :) Please consider the following…

Credit unions got their start in the US in churches in the late 19th/early 20th century. (Originally a German invention, which migrated to Canada, then to the US.) Parishioners pooled funds together and loaned them out at very low rates to people who otherwise could not get a loan from a bank, which was most people. My point: churches have a history of doing such things successfully.

Now, if we marry the notion of a credit union with the practices of micro-financing, we could come up with a way to maximize our charity dollars and relieve a tremendous burden on the poor. We replace pay-day loan sharks with parish-based micro-financing/charity. People get loans on their paychecks from the community, they pay it back with their paychecks without interest, and the money we’d normally just give away is re-circulated into the next transaction, leveraging the impact of our donations. The community eats the cost of the transaction in order to save the larger community from predator loan sharks.

We protect our program by not making bad loans. These loans are rather low risk, frankly. (Is it a little obvious I spent 10 years in banking???)

And yes, we could easily incorporate the "Hand Up!" program they have out west, where people get financial counseling.

Kevin McGrane

Kevin -

I agree with your argument and I don't.

You've stated your side well. I left mine unstated. Here's go:

Most parishes don't have the expertise to pick out the good from bad loans.

If you are picking out good loans then you making the same loans that banks would make although at better terms. Unless banks are stupid and not willing to make profit loans. Or it could be that credit unions have advantage over banks in their knowledge of the credit-worthiness within some of the small borrower segment.

I was also responding to the idea suggested that parishes lending at zero interest. At zero interest what incentive do I have to pay back? I just roll over my loan until you say I'm abusing the system. And at zero interest I go to you before I get a loan from a conventional lender -- leaving none of the funds left over for the truly needy. Which means the parish would both have to figure if you're creditworthy and needy.

You have me on experience in banking. I'm just an ivory tower game theorist.

John: "...I'm just an ivory tower game theorist." ROFLOL!!! :D

Yes, you are right. It's safe to say that most parishes don't have the expertise to start this kind of program from scratch. But one wouldn't need to start from scratch; you can go out and get the expertise. That, or have a diocese-wide program which supplies the T's&C's of the agreement, et al.

These kinds of loans - $100 to $1000 in size - banks don't even touch. Too small. BTW, the rates on some of these loans can be 400% or higher at these pay-day joints. (ref: the story linked in the piece).

The problem of rolling over the loan is solved in this scenario by insisting that Loan #1 is paid before Loan #2 is made, and then limit the number of loans made per year until the client takes the "Hand Up!" financial training program.

We can also not loan to the risky. This is micro-lending, so to speak, not micro-giving. :)

No doubt, details would need to be ironed out, like maybe it might be necessary to charge a fee: $3.00 for any check under $250, $6.00 for under $500 or something. It'll take time.

Kevin McGrane

I'm amazed current laws against usury do not already forbid this sort of predatory behavior.

Gutless state legislators let these businesses thrive. The halls of state legislatures are crawling with lobbyists for the industry who have them eating out of their hand and/or shaking in their boots. At least that's true in Virginia and South Carolina where I've seen it up close.

The same lenders thrive around military training bases.