Some Can't Wait For Federal Regulations On Payday Lending

WASHINGTON (CNS) - The federal Consumer Financial Protection Bureau, created in 2010 in the wake of a severe recession as part of the Dodd-Frank bill enacted by Congress, is preparing regulations to govern the practice of payday lending, which has grown widely over the past couple of decades.
But many jurisdictions can't wait for the regulations to be issued. Already, 14 states and the District of Columbia ban the practice, and nine states impose some kind of restrictions on short-term loans, the annual percentage rate of which can soar into thousands of percent.
A 2015 policy brief issued by the U.S. Conference of Catholic Bishops' Office of Domestic Social Development calls the practice "predatory banking."
Pope Francis, in a January 2014 general audience, voiced his hope that groups acting to end such banking tactics "may intensify their commitment alongside the victims of usury, a dramatic social ill. When a family has nothing to eat, because it has to make payments to usurers, this is not Christian, it is not human! This dramatic scourge in our society harms the inviolable dignity of the human person."
Bishop W. Michael Mulvey of Corpus Christi, Texas, agrees with the usury label. "We're not against these companies," he told Catholic News Service in an April 14 telephone interview from Corpus Christi. "But when you use them for the padding of your own pockets, that's a problem. We're talking 400 percent fees on these small loans."
Corpus Christi is one of 33 Texas cities that have restricted payday lending. Other large cities in the Lone Star State that do the same include Houston, Dallas and El Paso. The Texas Municipal League, an association for the state's cities, offers seven pages of model legislation to curb payday and car title loans that can be introduced at city councils.
The Texas Legislature, which meets only every other year, has not acted on a statewide bill.
Gordon Martinez rues the day he took out a payday loan.
Martinez, who had spent 10 years as a school music teacher and band director in New Mexico, had gotten married, and three stepdaughters were part of his new family. He moved to Texas and switched careers, taking a sales job. While building up his client list, he took out a $500 loan from a pawn shop, putting up his tuba as collateral.
He dutifully made his payments as required: every two weeks, in cash. Then Martinez, facing eviction, took out a payday loan. After paying $3,700 to keep from defaulting on the loan, he lost the loan anyway, plus the tuba, his car, his residence, and then his wife and new family. "I ended up so down and out I had all my possessions in two plastic storage tubs. I answered an online ad to sleep on a couch in a studio apartment," Martinez said.
"There's a spiritual dimension to this," he told CNS. "Satan likes to isolate us. That's when he can make the most damage. Shame is isolating -- not wanting to talk about it." Martinez said his outlook has improved greatly in the past year, "since getting involved with my church's justice team, (and interfaith group) Faith in Texas (part of the Catholic-founded PICO National Network), to empower other borrowers to speak out."
Bishop Mulvey said Catholic Charities affiliates in Texas have had to deal with the fallout of impoverished clients in the aftermath of payday loans. Catholic Charities, he said, is "just turning around, paying off these exorbitant debts which in some people's cases seem to never end." The money, he added, would be better spent helping people get back on their feet than to repay the payday loan companies.
The Catholic Charities experience in Texas is far from isolated. A study, "The Collateral Consequences of Payday Loan Debt," released April 13 by Faith for Just Lending, an interfaith coalition of groups working on the payday loan issue of which the USCCB is a member, found that 35 percent of clergy and service providers who knew someone with payday or car title loans had provided money to help pay off or refinance the debt.
Of those clergy, 86 percent of them said the loans had a negative impact on the borrower. Among the negative factors: family stress (87 percent), anxiety or other negative health effects (82 percent), increased need for emergency assistance (84 percent), and remained in debt longer than expected (84 percent). Only 11 percent of clergy said the loan was used for the intended purpose and paid off without additional borrowing.
The report noted that for a loan of $350, the typical borrower pays $458 in fees before the payday loan is paid off.
In 2013, Bishop Stephen E. Blaire of Stockton, California, decried the way payday lenders "take advantage of working people struggling to meet basic human needs" by exploiting the fact that their jobs do not pay enough. He urged Richard Cordray, director of the Consumer Financial Protection Bureau, to protect poor and vulnerable people from predatory payday lending and other harmful financial products. Those are the rules the agency is expected to unveil shortly.
Even Bishop Mulvey acknowledged the creativity of the payday loan industry. "The more rules you put in, the more you have to regulate and try to make sure" the industry adheres to the rules, he said. "There have been some improvements (in Texas), but then again I heard yesterday when someone comes in for a small loan for utility bills or something, they'll tack on an extra two- or three-dollar fee. I guess people find loopholes one way or another."