Anyra Cano Valencia was having dinner with her husband, Carlos, and their family when there was an emergency knock on their door.
The Valencias, pastors of Iglesia Bautista Victoria en Cristo in Fort Worth, Texas, opened the door to a desperate and overwhelmed congregant.
The woman and her family had borrowed $300 from a “money store” specializing in short-term, high-interest loans. Unable to repay quickly, they carried forward the balance while the lender added fees and interest.
The wife also took out a loan against the title deed of the family car and borrowed from other short-term lenders. By the time she came to ask the Valencias for help, the debt had soared to over $10,000. The car was to be seized and the woman and her family risked losing their home.
The Valencias and their church were able to help the family save the car and recover, but the incident alerted the pastoral duo to a growing problem – low-income Americans caught in an endless loan cycle. While the profits for lenders can be substantial, the consequences for families can be devastating.
Today, a number of churches are lobbying local, state and federal authorities to limit the scope of these loan operations. In some cases, churches offer small dollar loans to members and the community as an alternative.
The opposition is not universal, however. Earlier this year, a group of Florida pastors lobbied state lawmakers to allow a payday loan company, Amscot, to expand its operations.
An estimated 12 million Americans each year borrow money from stores offering “payday loans,” billed as a cash advance to allow workers to wait until their next paycheck. The vast majority of borrowers, according to a study compiled by finder.com, are between the ages of 25 and 49 and earn less than $40,000 a year.
The promise of quick money may sound appealing, but people who live paycheck to paycheck are often unable to pay back quickly. In Garland, Texas, northeast of Dallas, Pastor Keith Stewart of Springcreek Church said a third of people coming to his congregation for help cited payday loans as a problem in their life.
Lenders, Reverend Stewart said, “have set up a credit trap and are keeping people in perpetual payments.” He said he was frustrated to see his church helping people with food or rent, only to leave them prey to moneylenders.
For the Reverend Frederick Douglass Haynes III, who is the pastor of Friendship-West Baptist Church in Dallas, which has 12,000 members, the trigger was seeing a local nursery replaced by a ‘money store’ offering loans on salary. This was followed by a similar conversion of a nearby restaurant and transformation from a bank branch into a car title lending shop, he said.
“In our community alone, within a 5 mile radius, you had 20 to 25 payday loan and/or car title loan stores,” Reverend Haynes recalled.
Another surprise came when he saw the interest rates charged by lenders.
“The highest I’ve seen is 900%; the lowest is 300%” per year, he said. Officially, state usury laws generally limit the amount of interest that can be charged, but loopholes and fees push the effective interest rate much higher.
For Reverend Haynes and Reverend Stewart, part of the answer was clear: local officials needed to put limits on lenders. In Garland, Reverend Stewart and 50 members of the 2,000-member Springcreek congregation testified at a city council hearing, after which Garland officials limited what lenders could charge and how they could renew the loans.
Payday lenders soon left for other communities, Rev. Stewart said, but activism by him and others has succeeded in getting those communities to regulate lenders as well.
In Dallas, Reverend Haynes said he was struck when those caught up in the payday loan situation asked, “What alternatives do we have? »
“It’s one thing to curse the darkness and another to light a candle,” said Reverend Haynes. “I was doing a great job of cursing the dark, but there were no candles to light.”
The Friendship-West pastor then heard about the Nobel Prize-winning work of Muhammad Yunus, whose concept of microcredit has helped millions of people in Bangladesh. Reverend Haynes became convinced that the church needed a microloan fund to help those in need.
The church now operates Faith Cooperative Federal Credit Union, which offers checking and savings accounts as well as auto, mortgage and personal loans. Among the personal loans are small dollar loans designed to replace those offered by payday lenders, Reverend Haynes said.
Interest rates on small dollar loans range from 15% to 19%, depending on the creditworthiness of the borrower, he said. Although superior to a home equity line of credit, the rates are only a fraction of those charged by silver stores.
“We have issued over $50,000 in small loans, and the rate of clients who fully repay their loan is 95%,” said Reverend Haynes. “We demonstrate that people just need a chance without being taken advantage of. If given a chance, they will be responsible.
Reverend Haynes said the credit union has helped his church members beyond those who needed a short-term loan.
“We have freed people trapped in debt because they have access to this alternative,” he said. “Then they open accounts and embark on a path not only to financial freedom, but also to financial empowerment. The energy that our church has invested in the credit union has been a blessing. And the cooperative credit has been a blessing because so many people have benefited from it.
Churches in other communities embrace the idea of providing resources to those in need. At the La Salle Street Church in Chicago, senior pastor Laura Truax said the group had committed $100,000 to a fund for small dollar loans. So far, the group has granted nine such loans and wants to expand its work.
The National Hispanic Leadership Conference, based in Sacramento, Calif., regularly brings the issue before state and congressional lawmakers, said Gus Reyes, the group’s chief operating officer.
“You have to keep pushing,” Mr Reyes said. “There’s a lot of money behind (the payday loan), because it generates income” for the lenders.
“But he takes advantage of those who are marginalized. And so, because we have a heart for these people, it’s an important issue for us.