Are religious leaders in opposition to the payday loan industry? They could be joining the fight against the much detested sector in one state.
It was reported last week that several Minnesota officials would introduce legislation next week that would implement reforms on the payday loan industry. For the second time in two years, state representatives will try to cap interest rates, limit the number of payday loans a customer can use and curtail the methods of bad credit loan businesses collecting money.
Many concede that it will be difficult because the payday loan lobby has spent millions of dollars to quash any sort of regulatory reform bills. But the bill’s sponsors may have a new ally that will serve as an important ally: the religious community.
At an annual meeting this past week, Minnesota State Baptist Convention leaders announced they would support and advocate for congregants who have been seriously affected by high-interest payday loans. Moving forward, the church will partner with ISAIAH, a religious group that represents roughly 100 congregations across the North Star State.
Reverend Billy Russell said in a statement the bad credit loan industry makes immense profits “for those who design these predatory products.”
“The burden caused by payday loans is creating a crisis for children and families in our communities, hurting especially those who are most vulnerable,” Reverend Russell said.
In 2014, payday lenders in the state provided about 390,000 bad credit loans worth more than $149 million. Many of these payday lenders, says the Minnesota Department of Commerce, charged customers triple-digit interest rates on small dollar loans. Moreover, in Minnesota, the average payday customer takes out about 10 loans each year.
There are some who argue, however, that payday loan stores need to charge high amounts of interest because of the potential large default risk from its customers. Also, it is said that interest charges are no different than the amount financial institutions charge its customers when it comes to overdraft fees.
Victor Joecks, the executive vice president of the Nevada Policy Research Institute, presented the case that any reforms are aimed at “wiping out the industry” and limiting consumer choice.
“The CFPB’s new payday loan proposal wouldn’t just deprive millions of people of a valuable source of financing. It would also be a condescending intrusion into personal choice,” wrote Joecks.
“Adults should be allowed to control their finances however they please. No one is forced to take out a payday loan — just as no one is forced to take out a new credit card or home mortgage. These are products freely chosen on the open market.”
Minnesota representatives say they will wait to propose any reforms until the Consumer Financial Protection Bureau (CFPB) issue their national regulations in the coming months. The CFPB initially submitted proposals earlier this year that would shake up the industry, like capping interest rates and modifying the way payday lenders check and approve loan applications.
A new poll found that an overwhelming majority of Americans are in favor of these reforms. But is it such a huge concern? Only a fraction of U.S. consumers have actually filed complaints against the industry.