An “industry” that has emerged over the past forty years and that has been booming over the last decade is known as “payday lending.” A payday loan, sometimes called a paycheck advance, is a small, supposedly short-term loan that allows a borrower to cover urgent needs such as rent or mortgage payments, utilities, and/or medical bills. The predatory nature of payday lending has become a concern of church, consumer, and social justice advocates across the United States. Catholic social teaching is absolutely clear that society and people of faith are called to care for the most vulnerable of society and that care has long included a focus on lending practices.
Claudette Humphrey Almaraz, the Kansas Loan Pool Project Coordinator, has one main goal as she works to establish community collaborations and phases this "microloan" program into five Kansas communities within the Salina Diocese. "My main goal is to help those individuals who have been victimized by predatory lending companies to find a way out of the cycle of poverty that these types of loans work so hard to maintain." She added, "They target people in desperate situations who then utilize these payday or title loans to keep the lights on or to fix the car so they can get back and forth to work."
The Kansas Loan Pool Project (KLPP) is collaborating with Sunflower Band to offer lower-interest microloans to customers to pay off these extremely high-interest loans while also giving the person the opportunity to develop a positive banking relationship, which will help them to repair their credit. The loans are guaranteed by a $25,000 grant from the United Methodist Health Fund with a Catholic Charities match amount. The goal of the program is 90% repayment in full by the consumer.
In addition, consumers of this project will have to attend a mandatory financial class prior to being funded. Additionally, every client is required to participate in a monthly Leadership Circle/Financial Health Support Group. "We want to promote positive behavior change in the consumers of the KLPP. We want to help them understand their finances in such a way that their chance of recidivism to predatory lending is minimal."
Would you take out a loan that has an annual percentage rate of 391 percent? Yes, it sounds absolutely crazy, but millions of Americans do it every single year. The typical payday loan requires borrowers to pay about 15 dollars for every $100 that they borrow for two weeks. That comes out to a yearly rate of about 391 percent. And the payday loan companies know exactly who to target. They have set up thousands of shops in the poorest communities all over the nation over the last several decades.
Each year, approximately 12 million Americans take out payday loans and they pay approximately 7.4 billion dollars in interest and fees on those loans. Sadly, once you get hooked on payday loans they are very hard to stop. In fact, one study found that only 13 percent of payday borrowers get two loans or less per year. All other borrowers take out more loans than that. In fact, more than a third of all payday borrowers take out between 11 and 19 loans during the course of a single year.
Join us in learning more about an alternative to payday lending and to begin a conversation on how we in the Diocese of Wichita/faith community of Wichita can work to protect the least among us. In the teachings of our faith we have many warnings about usury and exploitation of people. Lending practices that, intentionally or unintentionally, take unfair advantage of one’s desperate circumstances are unjust. Catholic Social Teaching demands respect for the dignity of persons, preferential concern for the poor and vulnerable, and the pursuit of the common good. These principles coupled with our teaching on economic justice animate our questioning of current payday lending practices.