The Perils of Payday Loans

There are too many Americans struggling to make it paycheck to paycheck because of insufficient wages, and this struggle is further exacerbated by numerous other issues, including payday lending. A payday loan is a small loan that is framed as being an easy way to help borrowers and to hold them over until they receive their next payment. These loans are typically around $500 or less, and are usually due on a worker’s next payday. Yet these loans do the opposite of creating relief for borrowers. The average two-week payday loan has an interest rate that ranges from 391 to 521 percent, an incredibly high interest rate. The fees from these loans add up: $3.5 billion in fees come from repeated payday loans every year. Rather than rising out of debt, payday borrowers remain in debt for an average of 212 days of the year. Twelve million Americans are unable to escape this cycle of payday loans with 400% interest, perpetuating further cycles of economic inequality and locking Americans into poverty. Indeed, those who borrow payday loans are more likely to have overdraft feeds leading to closed bank accounts, unpaid medical bills, credit card delinquency, and even bankruptcy. Relying on payday loans leads to other issues that are symptomatic of economic inequality, demanding that we work to address these issues in promotion of economic justice. Our tradition calls on us to treat our workers fairly. We are taught that “if you lend money to My people, to the poor among you, do not act toward them as a creditor; exact no interest from them.” (Exodus 22:24-26). We are also taught to pay individuals back and to not withhold funding from each other: “do not withhold good from one who deserves it/When you have the power to do it for him” (Proverbs 3:27-28). Indeed, repaying loans is an element of righteousness: “A wicked man borrows and does not repay, but the righteous one is generous and keeps giving.” (Psalms 37:21). Last month, Rabbi Jonah Dov Pesner participated in a gathering of faith leaders to discuss predatory payday and small-dollar lending practices and the impact of these practices in communities across the US. A video from his talk can be found here. To learn more, go to the Center for Responsible Lending’s website.