Do good and curb the evils of predatory banks, payday loans

Recently, Pope Francis looked at usury – the lending of money at exorbitant rates of interest. “Usury humiliates and kills,” the pope told a group founded to oppose its practice. It is, he added, “an ancient and unfortunately still hidden evil which, like a snake, strangles its victims”.

The victims of usury are often the working poor and the elderly on fixed incomes who, when faced with a financial emergency, apply for a short-term loan. Some fall prey to “loan sharks” who lend at exorbitant interest rates and use blackmail or threats of violence to recover their debts. (In the film, Rocky, the protagonist was a “collector” for a loan shark in his neighborhood before his boxing career took off.) These practices are, of course, illegal. However, legal forms of usury survive, in a form of predatory banking, known as “payday loans“.

Payday loans appear (and are marketed as) a simple and straightforward aid to someone in immediate need of funds before the next paycheck. Using this salary as collateral, the consumer receives a short-term loan. When the paycheck arrives, the loan is paid off, plus fees and interest. However, in many cases, if not most, it is impossible for borrowers to repay on time. Indeed, these loans are not only used for emergencies, but often for recurring necessities (like food and rent) or to splurge on an impulse purchase. Thus, the borrower is trapped in a “debt trap” with the continually “rolling over” loans.

In the state of Florida, the average payday loan borrower takes out seven loans a year and pays an average annual percentage rate (APR) of 278%. The longer the borrower falls into the debt trap by taking out new loans to pay off old loans, the more profit the lender makes. But at what human cost?

As Pope Francis said, “usury is a grave sin: it kills life, tramples the dignity of people, is a vector of corruption and hinders the common good”.

A humane economy puts people, not profit, first. Human dignity, ethics, solidarity and the common good must always be at the center of economic policies. Lawmakers in crafting laws and regulations should seek to protect the most vulnerable from the predators of unscrupulous people. Lower interest rates — capped by law — would protect those who need the easy access to capital offered by payday lenders. At the same time, the working poor must have access to other sources of credit.

A consumer society, in which people are often valued not for who they are but for what they have, can appeal to the poor and vulnerable just as it appeals to the rich and powerful. Everyone, including the poor, could benefit from adopting a sober lifestyle that can distinguish between the superfluous and the necessary and thus not go into debt to obtain things that one could really do without. How many people have racked up crippling debt through the reckless and unruly use of credit cards?

But those who take advantage of the working poor who struggle to meet basic human needs through usurious practices are guilty of theft and worse. The Catechism of the Catholic Church teaches: “Those whose usurious and covetous acts bring about the hunger and death of their brothers in the human family indirectly commit homicide attributable to them. (#2269)

What is God asking of us? The prophet Micah says as best he can, “You have been told, O mortal, what is good and what the Lord expects of you: only to do justice and love good, and to walk humbly with your God.” (Micah 6:8) To do justice, we must oppose these modern forms of usury — that “ancient and sadly still hidden evil which, like a serpent, strangles its victims.”

Archbishop Thomas Wenski is the Archbishop of Miami.

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