News Articles

Payday loan rule flawed, say ERLC, others

WASHINGTON (BP) — The Southern Baptist Convention’s ethics entity and other members of a diverse religious coalition have urged the federal government to strengthen a proposed rule to regulate the predatory lending industry.

The Ethics & Religious Liberty Commission (ERLC) united earlier this month with other organizations in the Faith for Just Lending Coalition to call on a federal agency to close what the groups describe as a loophole that violates the entity’s own “borrower’s ability-to-repay standard.” The rule proposed in June by the Consumer Financial Protection Bureau (CFPB) would permit a lender to make payday loans of 300 percent interest six times a year.

The coalition also appealed for Congress to extend to all Americans an annual percentage rate cap of 36 percent, a limit now in effect for military service members.

Payday lending, as it is commonly known, often draws poor people into a debt trap by charging exorbitant, and often misleading, interest rates. For instance, though an interest rate may be portrayed by a lender as 15 percent, it actually is only for a two-week period until a person’s next payday. The annual interest rate in payday lending typically is about 400 percent, making it extremely difficult for a borrower to repay the loan.

The payday lending industry’s “predatory business model” directly violates biblical teaching, said Barrett Duke, the ERLC’s vice president for public policy and research, at an Aug. 16 news conference in Washington, D.C. “Scripture makes it clear that God condemns activity that takes advantage of the poor and the desperate.”

“We must insist — insist — that the payday lending industry’s predatory behavior is reined in,” Duke said. “If the industry won’t regulate itself, that’s where civil society comes in.”

In its Aug. 16 statement, the Faith for Just Lending Coalition commended the CFPB’s attempt in its proposed rule to protect people in financial crisis from “debt traps designed around their inability — as opposed to ability — to repay their loan. We believe that these efforts are a step in the right direction.”

The bureau’s allowance of six, 300 percent interest payday loans annually, however, “not only contradicts our own faith traditions, but also contradicts the CFPB’s own reasoning laid out in its proposal,” said the Faith for Just Lending Coalition.

Willie Gable, chairman of the Housing Commission of the National Baptist Convention USA, said at the news conference, “Such a gaping loophole is, in my opinion, essentially a sanction of these predatory products, not a step forward to rein them in.”

Sekinah Hamlin, director of the Ecumenical Poverty Initiative, said the CFPB’s “six-loan loophole puts states like my home state of North Carolina at risk. North Carolina along with 13 states plus the District of Columbia prohibit these 300 percent interest rates and thankfully, are free of these destructive loan products.”

In a news release, the Faith for Just Lending Coalition and the Faith & Credit Roundtable, which Gable co-chairs, encouraged religious leaders and organizations to submit comments about the proposed rule by Oct. 7. Comments may be made at lendjustly.com/comment-proposed-rule.

In addition to the ERLC, the National Baptist Convention USA and the Ecumenical Poverty Initiative, members of the Faith in Just Lending Coalition that signed the Aug. 16 statement were the National Association of Evangelicals, U.S. Conference of Catholic Bishops, National Latino Evangelical Coalition, Cooperative Baptist Fellowship, Center for Public Justice, Catholic Charities and PICO National Network.

The Faith & Credit Roundtable is the Center for Responsible Lending’s faith-based program.

The Southern Baptist Convention addressed the predatory loan industry in a resolution adopted by messengers during its 2014 annual meeting. The resolution denounced predatory payday lending, called for the adoption of just government policies to end the practice and urged churches to provide training in financial stewardship.

In April, a survey by LifeWay Research found 86 percent of self-identified Christians in 30 states believe laws and regulations should bar loans at “excessive interest rates.” The poll, commissioned by the Faith in Just Lending Coalition, also showed 77 percent of those surveyed said it is a sin to extend a loan that does financial harm to the borrower.

The ERLC helped launch the Faith for Just Lending Coalition in May 2015 as a concerted effort by diverse religious organizations to increase awareness of predatory lending and to motivate individuals, lenders, churches and the government to help bring an end to the practice.