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Dear Chuck,

What is your view of the payday loan? It seems that Crown would have some idea of ​​the dangers of such loans and whether there are other ways of obtaining a “small loan”, for example through religious lending clubs or other means.

Considering my options

Dear Considerant,

Thanks for the good question. It is a subject that is close to my heart, and indeed, which is also close to the heart of God.

Payday loans are a bad idea. They must be considered as “predatory loans” because they too often lead to a form of bondage for people who find themselves trapped in an over-indebtedness that is almost impossible to repay.

Usually a payday loan involves a very short and very high interest rate contracted by those who are in financial difficulty without a lot of options. In short, people who are in trouble and who are desperately looking for quick money.

the Center for Responsible Lending explains the “debt trap” of payday loans like this, and I quote:

1. In order to take out a loan, the payday lender requires the borrower to write a dated check for their next payday.

2. The payday lender cashes the check that day, before the borrower can shop for groceries or pay bills.

3. Interest rates are so high (over 300% on average) that people cannot repay their loans while covering normal living expenses.

4. The typical borrower is forced to take out one loan after another, incurring new fees each time. This is the debt trap.

Considering the terrible cost of this practice, the Pew Charitable Foundation found that a debt spiral almost immediately affects those who take out the loans, stating that “twelve million American adults use payday loans each year. On average, a borrower takes out eight loans of $ 375 each per year and spend $ 520 in interest “.

A Report of the Consumer Financial Protection Bureau found that over 80 percent of payday loans are renewed or followed by another loan within two weeks, and that 15 percent of new loans lead to a chain of at least 10 loans.

The biblical instructions on usury, which is understood as high and excessive interest rates, are to avoid taking advantage of the poor and vulnerable.

In Ezekiel 18, the prophet describes a righteous man by observing: “He does not oppress anyone, but returns what he pledged for a loan. He does not steal but gives his food to the hungry and provides clothes to the naked. He doesn’t lend them interest or take advantage of them. “

This is not a warning against making a profit on business loans. It is a warning against using financial leverage to harm those with few other options.

Proverbs 22:22 says it this way: “Do not exploit the poor because they are poor, and do not crush the needy in court.” “

The cruel burden of payday loans sparked so much concern that the Federal Bureau of Consumer Financial Protection started cracking down on them, resulting in another trend that can be just as predatory and dangerous for borrowers: loans installment. You may think that such loans last longer than the next payday, but still with often crippling interest rate, and these loans are often marketed to people with bad credit, so called subprime borrowers.

Installment loans can also be targeted at people who are struggling to repay their debts. In fact, “citing default rates that often range between 20% and 50%, the National Consumer Law Center said that installment loans can pose greater risk than payday loans because they keep borrowers in debt longer. », Reports the The Wall Street Journal.

So what should be done about it?

A variety of agencies and religious groups have become advocates for tighter regulations, zoning restrictions and policy reform. They are making inroads to reduce the worst practices. While this is useful, the market segment that needs immediate liquidity remains vulnerable. As a general rule, I recommend borrowers to seek to escape the trap through education and Christian alternatives.

There are a number of faith groups offering innovative alternatives, such as Faith for the righteous loan. Some churches in Pennsylvania have established a program called Grace period, working with a local credit union to set up savings accounts that are offered to the borrower after their loan is paid off.

The crown has long advised local churches to help those in need of financial assistance, encouraging congregations to set up a Benevolence Committee to bring in financial coaching, CV writing workshops, even gifts or short-term loans. Crown also has many resources to help churches equip their people to serve those in need. Individuals can take a Free MoneyLife indicator assessment, which will serve as an educational and guidance tool for those who want to learn to flourish.

But pastors who want to learn more about how their members are performing, and what tools would best meet the needs of their congregation, can begin this process with a Financial evaluation taken as a group, with individual identities kept private, so that the true needs of a church can be addressed as a whole through a group snapshot of the needs and attitudes of those they serve each week.

Crown is committed to making a difference on this issue. We are currently working with local churches to pilot an interest-free loan program that combines Bible education with immediate cash needs to fight wolves who seek to enslave sheep.

Stay tuned for more information as we hope to scale up our program in 2017. As I said, this issue is close to our hearts.

To #Ask ​​Chuck @AskCrown your own question, click here.

Chuck Bentley is the CEO of Crown, the world’s largest Christian finance ministry, founded by the late Larry Burkett. He is an author, host of My MoneyLife, a daily radio show, and a frequent speaker on the subject of biblical financial principles. Follow him on Twitter @chuckbentley and visit Crown.org for more help.