Except.... You still have the negative cash flow and don't have resources to fully cover the $330. So you go back to the payday lender asking them not to cash the check -- you pay them what you can (say $200) and then you take out another loan, paying another fee -- and so on and so forth. Sometimes people get stuck paying the equivalent of 300% a year. But such operations are not subject to usury laws because they're not charging interest, they're charging fees.
I've been hot under the collar about these outfits for a while, for while they are legal, I see little that is beneficial to society about them (yes, they offer financial services to people who otherwise might not be able to have access to them -- but at what cost? they're creating a new form of indentured serviture). Just because they're legal doesn't mean I have to like them.
This came on my mind again when I received the newsletter from the Presbyterian Church's Washington Office (full disclosure -- I have been a critic (in one post last year) of the concept of the Washington office, and I'm philosophically opposed to the idea of having a lobbying arm of the PCUSA. I signed up for their newsletter because I felt I needed to be informed of actions that are taken on my behalf as a Presbyterian). The newsletter contained a thoughtful piece by Carolynn Race on Presbyterians and Usury.
She pointed readers to the 217th General Assembly's adoption of a report on "A Reformed Understanding of Usury in the 21st Century". This report is well worth the read -- it's thoughtful and while it contains the usual large scale policy solutions, it also makes very firm statements about personal responsibility:
There is one more way in which the understanding of “usury” needs to be re-engaged for the 21st century. The Book of Confessions not only links usury to the business practices of the lender but also to the economic habits of the borrower, indeed of the whole society of which the borrower is a part. Thus the Westminster Larger Catechism not only states the positive duty for “faithfulness and justice in contracts,” but also the positive duty for “moderation of our judgments, wills, and affections, concerning worldly goods” and for “frugality” (7.251). Stating this latter concern in terms of what is forbidden by the eighth commandment, the catechism specifies “inordinate prizing and affecting worldly goods; distrustful and distracting cares and studies in getting, keeping, and using them; envying at the prosperity of others” (7.252). A proper concern with usury in the 21st century cannot rest content with the practices of lenders, but as in the 16th and 17th centuries, must reckon with the habits and behaviors of borrowers.
Throughout the history of reforming the small-loan industry in the U.S. recounted earlier, various efforts were made to provide not only relief from excessive interest but also to provide financial counseling that would make the resort to small loans for financial emergencies less frequent. Although such approaches may have been characterized as having “equal measures of sympathy and paternalism,”20the fact was that borrower behavior was also considered. Although a borrower’s financial habits are decisively limited by the macroeconomic conditions in which they are exercised, they are not irrelevant to the borrower’s financial well-being. Indeed, it might be that the emphasis that the personal finance industry developed in the first half of the 20th century on personal financial planning,21 was a proper effort by lenders to take into account “procuring and preserving the outward estate” of the borrower.
In any event, some of those who have wrestled more recently with the dilemmas of the relatively poor who are forced to avail themselves of alternative financial services, have continued to see a role at least for encouraging savings that might obviate the need for recourse to payday lenders when financial emergencies arise. In addition to the incentives for financial literacy classes cited in the case of the Northside Community Federal Credit Union’s PAL program, Michael S. Barr also argues that strategies to bring low-income persons into the financial services mainstream need to include initiatives designed to increase savings for short-term financial stability and to improve access to less expensive forms of credit where appropriate—“for example, with overdraft protection, account-secured loans, credit cards or loans with automatic withdrawals from pay directly deposited into accounts, but with significantly longer terms than payday loans.”22 He also describes America Saves, a program sponsored by the Consumer Federation of America, which combines financial education with low-income savings plans building on self-identified savings goals that could serve as a model for increasing savings among low- to moderate-income families. Barr also believes that nonprofit and faith-based organizations can play important roles in partnering with financial institutions to expand financial education to low-income households.
And this takes me back to Carolynn Race's article. She begins her suggestions for what we can do, not with advocacy (though she does touch on that later in the message), but with working directly in the local community. She makes Recommendations like:
1. Support efforts to provide more effective and less costly financial services to people who are now forced to utilize high-cost alternative financial resources by:
* Partnering with and supporting legitimate, ethical nonprofit organizations that provide both educational and financial services to those not eligible for mainstream services, including participation in the development of community credit unions;
* Partnering with local community organizations that help low-income people learn about resources in the community that can provide them better opportunities for both saving and borrowing;
* Supporting faith-based investor groups that seek to change discriminatory lending practices; ....
2. Support and implement education for financial literacy by:
* Learning what organizations, resources, and educational materials are available on the web and in the community;
* Developing or securing appropriate (for age, culture and language) educational materials and/or educational sessions for children, teens, college students, young adults, adults, and seniors to demystify savings, credit, and lending and encourage savings and frugal use of credit cards and loans;
* Encouraging Presbyterian publications to make articles on financial literacy part of total stewardship of God-given resources.
(Ellipsis indicate that I've cut out a bullet point or two for brevity's sake)
Now these are recommendations I can get on board with. I can heartily commend financial education programs like Crown Financial Ministries. I can point people toward local nonprofits like Smart Money (hat tip to John Jensen here) that provide affordable financial services and financial counseling to the working poor. I can celebrate ministries like Jobs Plus that help people develop Job Skills, and life management skills. Good work is being done out there to rescue people from sharks. Praise God.
Soli Deo Gloria