Washington D.C., Jun 5, 2016 / 15:44 pm
As the federal government considers regulating the infamous “payday loan” industry, Catholics are already acting to help borrowers saddled with loan debt.
“I think that, from a social justice standpoint, we have the ability to speak for an entire group of people who are being marginalized and taken advantage of,” Stacy Ehrlich, executive director of the Society of St. Vincent de Paul for the Diocesan Council of Austin, told CNA in an interview about the society’s predatory loan conversion program.
The program allows people burdened with one or several onerous short-term loans to pay them off with a low-interest loan from a local credit union. The program exists “to offer some sort of resolution” for borrowers who are “being preyed upon,” Ehrlich explained.
Payday loans and similar types of loans have been criticized as capitalizing on people in desperate situations by charging exorbitant interest rates and fees in terms that customers often do not fully understand and to people who may have no other choice but to take the loan despite the extreme conditions.
Although the rise in “payday loans” is a recent phenomenon, there is a history of “loan sharks” in the U.S. that goes back much further. The basic idea is the same, however: for borrowers who are often strapped for cash and have an emergency expense, lenders offer a small amount of money for a short period of time – until the next paycheck, for example – but attach high interest rates or high “rollover” fees.
With all the fees taken into account, these loans can carry annual interest rates approaching 400 percent, the Consumer Financial Protection Bureau notes.
Some people are able to pay off such a loan quickly, but the process often ends in debt for the borrower, said Dr. Robert Mayer, a professor of political theory at Loyola University Chicago who authored the book “Quick Cash: the story of the loan shark.”
People take out payday loans because they are “speedy” and “convenient” where “relatively few questions are asked,” Mayer told CNA.
A typical borrower is not necessarily among the “poorest of the poor” who has no credit, he noted, but can be a low-to-middle income working-class person without sufficient savings who needs “fast credit,” perhaps for an emergency expense like a car repair or dental work.