“In imitation of our Master, we Christians are asked to confront the poverty of our brothers and sisters, to touch it, to make it our own and to take practical steps to alleviate it.”
— Pope Francis
by Most Rev. Edward J. Weisenburger
Bishop of Salina
Our Holy Father designated 2016 as a jubilee Year of Mercy. Since biblical times, one of the hallmarks of a jubilee year has been the cancellation of debts that were beyond the ability of the poor to pay. Liberation from the psychological and material “prison” of indebtedness is the perfect metaphor for God’s mercy.
In keeping with this spirit of mercy, I would like to invite all Kansans to take Pope Francis’ words to heart so we may, together, confront and touch a particular form of unjust poverty afflicting tens of thousands of our brothers and sisters: payday loan indebtedness. To confront this situation, in the words of Pope Francis, means we must begin with hard facts about the industry. Touching this poverty, building on the Holy Father’s quote, means resisting the temptation to turn our eyes away from the suffering of our neighbors, shrugging it off as the result of financial irresponsibility or ignorance that has nothing to do with me.
Beginning with hard facts, we must note that abusing the poor by lending money to those in crisis at astonishingly high interest rates is a practice that was condemned or restricted by every civilization. This abusive behavior was rightly recognized as destructive and corrosive for communities and society. However, with the modern payday loan industry, what was correctly labeled reprehensible and predatory is now presented as friendly, safe and legitimate; indeed, it is presented as an altruistic financial service. The fact is: Nothing could be further from the truth. So what is the truth?
- Payday lenders take advantage of a state of desperation experienced by those in dire financial circumstances. It is this sense of crisis that causes those (often with little financial understanding and few other options) to initiate an unseen cycle of debt from which it quickly becomes virtually impossible to escape. In 1995, there were 37 payday loan entities in Kansas; by 2014, this number grew to 347. Sadly, Kansas has one of the highest payday loan use rates in the country at eight percent of the population! This means that 175,000 of our family, friends and neighbors are ensnared by payday debt.
- Unlike more mainstream and regulated financial products (such as banks or savings and loan institutions), most payday loans provide scant consumer protection. The average loan is $300 and must be repaid within two weeks — when the borrower receives his or her next paycheck. The fees charged for the loan are equivalent to an annual percentage rate of over 300 percent. Statistically, more than 80 percent of loans cannot be repaid within this time period. The result is typically a loan that ends up with doubled or tripled fees! The initial sum constitutes more than a third of the average borrower’s disposable income, leaving even less money to pay for basic human needs such as food, housing, transportation to the place of employment and utilities.
- Who is most at risk? No one is more vulnerable to the catastrophic consequences of “ballooning” fees than those who live on fixed incomes or who have been designated by social services agencies as highly at risk and unable to secure additional income due to advanced age, disability or some other critical circumstance. In 2014, 1,006,388 payday loans were made to Kansans totaling almost $392 million. Based on national averages, tens of thousands of these loans were made to Kansans who earn less than $20,000 per year. Roughly 30,000 of the poorest borrowers depend upon Temporary Assistance for Needy Families (TANF), disability or Social Security insurance as a major, or even primary, source of income. What this means is that a substantial amount of our Kansas tax dollars are being funneled through the poor and into the pockets of the payday loan industry! Moreover, 53 Advance America outlets in the state of Kansas alone are owned by Salinas Pliego, a Mexican billionaire. Not only are Kansas tax dollars being funneled through the poor and into the pockets of the payday loan industry, but a significant amount is going to a billionaire in a foreign country! What is more disturbing is that our poorest neighbors and co-workers, who legitimately depend upon every penny of public assistance to care for their children or sick family members, would have been required to pay an estimated $10 million in interest and fees on these loans. Each borrower paid an average of $325. As the yearly limit for TANF is $1,300, nearly one third of crucial, fixed income would be required just to service a loan.
Again, recall that Pope Francis has asked that we make poverty our own and take practical steps to alleviate it. There is little relief provided by federal regulatory agencies tasked with supervising this industry. In May of this year, the Consumer Financial Protection Bureau published preliminary new regulations intended to respond to public outcry. Analysis of the proposed rules reveals numerous deficiencies, particularly concerning verification of a customer’s ability to repay loans while affording fundamental necessities. Local legislative and personal solutions are clearly needed.
I join with my brother bishops of Kansas in thanking each of you for your contributions to safety networks and charitable outreach programs in your parishes and communities. Perhaps coming to a better understanding of just how many Kansans believe their only option is to turn to predatory lenders will move us to become even more involved.
If you’re asking yourself “What can I do?” my response would be to prayerfully consider contacting your state legislators and asking them to initiate or support true reforms that will provide similar consumer protections afforded to those who use mainstream financial institutions (banks or savings and loan institutions) every day. We ask for a special focus on those who are already considered particularly vulnerable to the false security advertised by predatory lenders on virtually every street, but primarily advertised in our poorest neighborhoods. In doing so, you will be taking part in our Year of Mercy effort to fulfill the Holy Father’s request that we take practical steps to alleviate the unjust poverty that literally surrounds us. Surely this corporal and spiritual work of mercy is a perfect participation in this holy Year of Mercy. What a fitting conclusion it would be if we could initiate the liberation our beautiful state and its poorest residents from this cruel shackle of crushing debt.
PREDATORY LENDING = DEBT TRAP
The truth unveiled:
Kansas families deserve security and dignity, NOT 391% interest rates.
“When a family doesn’t have enough to eat because it has to pay off loans to usurers,” the pope said, raising the volume level considerably, “this isn’t Christian! It’s not human!”
— Pope Francis, 2014
- Payday and title lending is unjust and predatory and in direct contradiction to Catholic social teaching.
- An average person who borrows $500 and cannot pay off the full loan for a year will ultimately pay $1,800 in fees. At the end of that year, they will still be in debt for the original $500 loan.
- Payday and car title lending use a business model called “churning” that ensures repeated borrowing instead of paying off the debt. The business model increases profit when borrowers fail.
- Ninety percent of industry profits come from trapped borrowers.
- The payday industry utilizes aggressive and deceptive advertising methods and locates its stores in lower-income neighborhoods and close to shops frequented by the most vulnerable in communities.
- In direct contradiction of Catholic social teaching, payday and title lenders directly and specifically target the most vulnerable in great financial upheaval with few choices for a way out.
- Payday and title lending strips the dignity of the borrower and destroys financial stability of our most marginalized Kansans.
- There are 347 payday stores statewide, yet the fees paid to these lenders is $54 million!
- While Kansas has not authorized car-title lending, car-title lenders are able to avoid Kansas’ 36 percent rate cap on closed-end small loans by defining car-title loans as opened-end and charging 264 to 360 percent interest!
For more information on how Catholic Charities is combating the issue of predatory lending and advocating for legislative reform through the Kansas Loan Pool Project, contact Claudette Humphrey at (785) 825-0208 or online at: firstname.lastname@example.org.