Payday Lending

In the United States there are more than 23,000 payday lending stores, outnumbering the combined total of McDonald’s, Burger King, Sears, J.C. Penney, and Target stores.1 It may be difficult to believe there are this many until one scans the streetscape and tallies the numerous lending outlets in low-income neighborhoods.

None of these lenders make conventional loans. Instead, they offer small loan amounts for short periods of time, usually until the borrower’s next paycheck, hence the term “payday loan.” While some borrowers undoubtedly benefit from this otherwise unavailable source of short-term, small-amount credit, the
payday lending business model fosters harmful serial borrowing and the allowable interest rates drain assets from financially vulnerable people.

Definitions of Usury

Usury is the practice of making loans with excessive or exploitive interest rates. The term may be used in a moral sense — condemning taking advantage of others’ desperation — or in a legal sense — exceeding the maximum interest rate allowed by law. Most states have usury statutes and regulations that cap interest rates on most loans and/or revolving (credit card) balances. In a strict legal sense, only interest violating these laws is usurious. However, if laws and regulations fail to address exploitive and abusive lending practices, loans that are technically legal may be morally usurious. In this case the lending laws should be reevaluated.

Usury laws echo the sacred texts and the wisdom of the Abrahamic faith traditions. The Bible declares, “If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest” (Exodus 22:25). The Qur’an takes a principled stance against predatory lending — charging any interest at all is sinful according to Allah, as it is the responsibility of financial professionals to help people get out of debt as soon as possible, rather than deepening and profiting from their debt (Surah 2:275-281).

In the Compendium of the Social Doctrine of the Church2, the Catholic Church teaches that “usury is a scourge that is also a reality in our time and that has a stranglehold on many people’s lives. Although the quest for equitable profit is acceptable in economic and financial activity, recourse to usury is to be morally
condemned.”

The practices of most payday lenders are very similar to those condemned in the sacred texts and teachings of Judaism, Islam, and Christianity in that they encourage the borrower to stay in debt for increasing periods of time. As people of faith, we oppose usurious practices that exploit people’s financial problems for profit and leave the consumer worse off at the end of the loan period. Ironically, some of these very practices are perfectly legal under current usury laws. JRLC is focused on expanding awareness about the true costs of these predatory loans, encouraging alternatives for access to short-term credit, and supporting legislation that will ensure adequate and enforceable protections for consumers.

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