Churches use political pressure and small loans to fight predatory payday loans


Anyra Cano Valencia was having dinner with her husband, Carlos, and their family when an urgent knock came to their door.

The Valencias, pastors at Iglesia Bautista Victoria en Cristo in Fort Worth, Texas, opened the door to a desperate and overwhelmed devotee.

The woman and her family had borrowed $ 300 from a “money store” specializing in short-term, high-interest loans. Unable to repay quickly, they carried over the balance while the lender added fees and interest. The woman also took out a loan against the title of the family car and borrowed from other short-term lenders. By the time she came to the Valencias for help, the debt had swelled to over $ 10,000. The car had to be taken back and the woman and her family were at risk of losing their home.

The Valencias and their church were able to help the family save the car and recover, but the incident alerted the pastoral duo to a growing problem: low-income Americans caught in a never-ending loan cycle. While the benefits for lenders can be substantial, the toll for families can be devastating.

Now, a number of churches are lobbying local, state and federal authorities to limit the scope of these lending operations. In some cases, churches offer small loans to members and the community as an alternative.

The opposition is not universal, however: Earlier this year, a group of pastors in Florida pressured state lawmakers to allow a payday loan company, Amscot, to expand its operations.

An estimated 12 million Americans borrow money each year from stores offering “payday loans,” billed as a cash advance to help workers until their next paycheck. The vast majority of borrowers, search compiled by states, are between 25 and 49 years old and earn less than $ 40,000 per year.

The promise of quick cash may sound appealing, but people living paycheck to paycheck are often unable to repay quickly. In Garland, Texas, northeast of Dallas, Pastor Keith Stewart of Springcreek Church said a third of people coming to his congregation for help cite payday loans as a problem in their life.

Lenders, said Stewart, “have set up a credit trap and are keeping people in perpetual payments.” He said he was frustrated to see his church helping people with food or rent, leaving them plagued by lenders.

And for Frederick Douglass Haynes III, pastor of the Friendship-West Baptist Church in Dallas, which has 12,000 members, the trigger was to see a local nursery replaced by a “money store” offering payday loans. This was followed by a similar conversion of a nearby restaurant and the transformation of a bank branch into a car title lending store, he said.

“In our community alone, within a five mile radius, you had 20 to 25 payday loan and / or car title lending stores,” recalls Haynes.

Another surprise came when he saw the interest rates charged by the lenders. “The highest I’ve seen is 900%, the lowest is 300%” per year, he said. Officially, state usury laws generally limit the amount of interest that can be charged, but loopholes and fees push the effective interest rate much higher.

For Haynes and Stewart, part of the answer was clear: Local authorities should put limits on lenders. In Garland, Stewart and 50 members of the Springcreek congregation, which has 2,000 members, testified at a city council hearing, after which Garland officials restricted what lenders could charge and how they could renew loans. ready.

Payday lenders quickly left for other communities, said Stewart, but the activism of him and others was successful in getting those communities to regulate lenders as well.

In Dallas, Haynes said he was struck when those in the payday loan situation asked, “What alternatives do we have? “

“It’s one thing to curse the darkness and another to light a candle,” Haynes said. “I was doing a great job cursing the darkness, but there were no candles to light.”

The Pastor of Friendship-West then heard about the Nobel Prize winning work of Muhammad Yunus, whose concept of microcredit has helped millions of people in Bangladesh. Haynes became convinced that the church needed a microcredit fund to help those in need.

The church is now functioning Federal Credit Union Faith Cooperative, which offers checking and savings accounts as well as auto, mortgage and personal loans. Personal loans include small loans designed to replace those offered by payday lenders, Haynes said.

Interest rates on small loans range from 15% to 19%, depending on the creditworthiness of the borrower, he said. Although they are higher than, say, a home equity line of credit, the rates are only a fraction of those charged by silver stores.

“We have granted over $ 50,000 in small loans, and the rate of clients who fully repay their loans is 95%,” said Haynes. “We show that people just need a chance without being exploited. If given a chance, they will be responsible.”

Haynes said the credit union has helped members of his church beyond those in need of a short-term loan.

“We have freed people trapped in debt because they have access to this alternative,” he said. “Then they open accounts and move on not only to financial freedom, but also to financial empowerment. The energy that our church has put into the credit union has been a blessing, and the credit union has been a blessing because so many people have benefited. “

Churches in other communities embrace the idea of ​​providing resources to those in need. At La Salle Street Church in Chicago, Senior Pastor Laura Truax said the group had committed $ 100,000 to a small dollar loan fund. So far, the group has granted nine such loans and wants to expand its activities.

The National Hispanic Leadership Conference, based in Sacramento, Calif., Regularly brings the issue before state and congressional lawmakers, said Gus Reyes, the group’s chief operating officer.

“You have to keep pushing,” Reyes said. “There is a lot of money behind [payday lending]because it generates income “for lenders.

“But it benefits those who are marginalized. And so, because we have a heart for these people, this is a big issue for us.”

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