Justice We Pursue

A Modern Form of Usury

"Usury" is not a word we often hear in contemporary America, although usurious (read: predatory!) lending practices are widespread and growing. Our sacred texts have long warned against usury, not only found in sources such as the Hebrew Bible and the Qur'an, but also in the Vedic texts of India, the Christian Bible, and ancient Buddhist scriptures.

Recently, there has been a dramatic boom in the payday loan industry. Nearly all of the country’s 22,000 payday loan institutions have been established within the last 15 years, making modern payday lending a somewhat novel enterprise. The relative youth of the industry allows it to be regulated loosely and change rapidly, with little public awareness surrounding the issue.

Payday LendingIf it were clear to consumers that they could end up being charged as much as 365% interest, it’s likely that the popularity of the multibillion-dollar fast-cash industry would decline by itself. However, lenders actively employ deceptive marketing techniques that serve to disguise the true costs of their products and make them ostensibly appear to be a fast and easy way to get help in tough situations.

When a customer asks about the interest charged on a payday loan, most lenders will claim that they don’t charge interest; just a simple flat fee with additional penalties if the loan is not paid back on time. This is quite misleading. Translating the fees and penalties charged into a standardized annual percentage rate reveals the kinds of exorbitant interest rates that constitute usury.

The vitality of payday lending has been especially robust during the recent recession. At a time when people are struggling more than ever to make ends meet, many Minnesotans have turned to payday loans. Nearly four times more payday loans were taken out in Minnesota during 2008 than in the years leading up to the recession. Consumers who are looking for short-term relief may not realize that they run the risk of becoming stuck in a long-term cycle of debt.

Minnesota state law technically prohibits charging more than 33% APR interest on small consumer loans. However, lenders are currently regulated based on the type of institution they are, rather than the products they sell. This lack of uniformity in regulation provides just enough ambiguity for some lenders to continue charging abusive interest rates.

For this reason, creating and supporting legislation that would place uniform consumer protections on all payday loans is an imperative step in the fight against predatory lending and for cultivating alternative channels for accessing short term credit when Minnesotans need it.

- Kurt Howard, JRLC Summer Intern
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