Of Do good, and curb the evils predatory banking, payday loans

Recently Pope Francis weighed in on usury — the lending of money at exorbitant interest rates. “Usury humiliates and kills”, the Pope said to a group founded to oppose its practice. It is, he added, “an ancient and unfortunately still concealed evil that, like a snake, strangles its victims.”

Victims of usury are often the working poor and elderly on fixed incomes who when faced with a financial emergency seek a shortterm loan. Some fall prey to “loan sharks” who lend at exorbitant interest rates and use blackmail or threats of violence to collect on their debts. (In the Movie, 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) simple and straightforward help to someone in immediate need of funds before the next paycheck. Using that paycheck as a form of collateral, the consumer receives a short-term loan. When the paycheck arrives, the loan is paid off, plus fees and interest. However, in many if not most cases, it is impossible for borrowers to repay in the required time frame. This is because these loans are not only used for emergencies but often for recurring necessities (like food and rent) or to splurge on some impulsive purchase. Thus, the borrower becomes ensnared in a “debt trap” with the loans continually “rolled over.”

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

As Pope Francis said, “Usury is a serious sin: it kills life, tramples on the dignity of people, is a vehicle for corruption and hampers the common good.”

A human economy places the person and not profit first. Human dignity, ethics, solidarity and the common good should be always at the center of economic policies. Legislators in the crafting of laws and regulations should seek to protect the most vulnerable from the predations of the unscrupulous. Lower interest rates — capped by law –— would protect those who need the ready access to capital that payday lenders provide. At the same time, the working poor need access to alternative sources of credit.

A consumer society, in which people are often valued not for who they are but for what they have, can seduce the poor and vulnerable as it seduces the rich and powerful. Everybody, including the poor, could benefit by adopting a sober lifestyle that can distinguish between the superfluous and the necessary and thus not assume debts to obtain things that one could in reality live without. How many people have accumulated crushing debts by the imprudent and undisciplined use of credit cards?

But those who take advantage of the working poor struggling 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 avaricious dealings lead to the hunger and death of their brethren in the human family indirectly commit homicide, which is imputable to them. (#2269)

What does God ask of us? The prophet Micah says its best: “You have been told, O mortal, what is good, and what the LORD requires of you: Only to do justice and to love goodness, and to walk humbly with your God.” (Micah 6: 8) To do justice requires us to oppose those modern forms of usury — that “ancient and unfortunately still concealed evil that, like a snake, strangles its victims.”

The Most Rev. Thomas Wenski is the Archbishop of Miami.