In November of 2013, Bishop Stephen Blaire of Stockton, then-chair of the committee on domestic justice and human development for the U.S. bishops' conference, wrote the head of the Consumer Financial Protection Bureau about payday lending abuses.
Most payday loans are used "to meet recurring, basic needs," he wrote, but they "are structured in such a way as to make repayment very difficult, initiating a cycle of deeper indebtedness that adds to borrowers' financial stress, rather than relieving it."
Such lending is immoral because it "preys on the financial hardship of poor and vulnerable consumers, exploits their lack of understanding, and increases economic insecurity," he said.
And bishops elsewhere have fought for payday loan reforms, like in Texas, where the state's Catholic Conference has pushed for regulations at the state legislature.
On Thursday, the Consumer Financial Protection Bureau proposed new regulations of the payday loan industry. Companies, before lending, must conclude that the borrower is capable of paying back the loan. There are other proposals, like limits on the number of times a lender could access a borrower's bank account to prevent overdraft fees from piling up if the account has insufficient funds.
Regulations could successfully curb lending abuses, Dr. Mayer said, but they could also carry adverse consequences for some people needing a fast line of credit.
"Insofar as lenders are being forced to be more responsible or more cautious," he noted, "that can help prevent people from getting trapped in cycles of debt, as long as loopholes don't open up."
However, he added, "some people will lose access to emergency credit," including perhaps those who have successfully paid off such loans in the past without incurring large amounts of debt.
This is where the Church and faith-based organizations could step in to help those who need emergency cash at a low cost. And some groups are already doing just that.
The Society of St. Vincent de Paul in Austin started its loan conversion program in 2014 under Bishop Joe Vasquez, a leading voice for predatory loan reform in the state, after he encouraged them to actively help those saddled with debt.
"We also felt like there needed to be a little bit of money where our mouth was," Ehrlich said, noting "that calling to be actionable and not just talk."
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Although in Texas there is a cap on the direct interest rate for a loan, there are no limits on "rollover renewals," Ehrlich said, meaning that despite seemingly innocuous interest rates, hidden costs on loans can add up with each session.
For instance, a two-week loan might have an advertised 10 percent interest rate with a $50 paperwork fee, Ehrlich said. However, for each period that loan is not paid, another $50 paperwork fee is added on to the outstanding payment. Over the course of several weeks, that cost can easily balloon into a debt that is enormous for someone with a limited budget or irregular income.
With all the costs and fees included, the average annual interest rate for a loan ends up at an astonishing 303 percent, Ehrlich said. "300 percent interest rate for anyone is just not sustainable," she insisted.
The society partnered with a local credit union shared-loan program, offering short-term low-interest loans to people who need to pay off their payday loans. They made their first loan in April of 2014 and the program took off later in the summer.
With $100,000 the society raised, the money acts as collateral to guarantee loan payments. The loans are offered at 2.5 percent annual interest, enough to cover operating costs. Neither the credit union nor the society profits from the endeavor, Ehrlich said.
Since the start in 2014, 88 loans of 54 people have been converted, she noted; borrowers often have several loans out at a time, and may take out one loan to pay off another. The average loan size is $720.