Multiply Justice

Payday loans: Oppressing desperate souls at 390% APR

“The rich rules over the poor, And the borrower becomes the lender’s slave.” (Proverbs 22:7)

It’s hard to imagine a more predatory practice than payday lenders, with desperate poor people charged an effective 390% annual interest rate — in many states legally and unregulated.

Barrett Duke writes at erlc.com:

It’s easy to get in debt and often very hard to get out. This is especially true if you live on the edge of poverty. People on the edge of poverty have very little room for an unexpected expense. So, what do they do when one inevitably occurs? Many turn to payday lenders. And in doing so, they often make their poverty worse.

Here’s how it works. A payday lender offers to lend a single mother, say, $500 to help pay for an unexpected expense, like a car repair. He offers a simple deal—repay the loan in two weeks with 15% interest. In other words, when her next paycheck comes in. She can’t afford the loan and doesn’t know how she will repay it, but she needs her car to get to work, her children to daycare, and herself to college. “OK,” she says to herself, “I’ll figure it out in two weeks.” Two weeks come in a hurry, and suddenly she owes $565, the $500 loan plus 15% interest. That’s right, it’s not 15% annual interest. It’s 15% two-week interest.

She goes to the lender and explains her problem. He says, “No problem.” Just pay the interest due and he can extend the loan for two more weeks, at another 15% interest. What choice does she have? She pays the $65 and signs on for another two weeks. You see where this is heading, don’t you? Every two weeks, things are the same, and this woman is now paying out $130 a month on a $500 loan, with no end in sight. …

in many of our states, no one is watching these payday lenders. The result is that vulnerable people are being held captive and paying outrageous amounts of interest on very small loans. … Let me encourage you to check your state’s laws governing payday loans. If your state hasn’t done anything to rein these people in, I hope you will contact your elected officials and demand that they do something to help protect vulnerable people in your communities.

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