"Usury! In 2008? In Ohio!"

Rev. Bruce Russell-Jayne
October 26, 2008

Reading: "Payday Lending Services" by Sam Hananel

Our reading this morning is an Associated Press article entitled “Defense Department Warns Personnel About Payday-Loan Services That Can Lead to a Spiral of Debt.”

Army Chief Warrant Officer Thomas Burden needed money.  He had just been through a divorce, his credit was bad and he couldn't qualify for a conventional loan. So he turned to a payday lender one of dozens within a mile of his base at Fort Hood, Texas.
Thus began a vicious cycle of getting quick cash advances at high interest rates.
His first $300 loan cost a fee of $60 every two weeks. More loans and fees at the equivalent of 520 percent interest per year soon swelled the debt to more than $1,400.
"It just kind of keeps snowballing if you don't have the money to cover it," said Burden, 35.
Now the Defense Department is launching a new effort to warn service members about the dangers of payday loans, citing new reports that suggest these lenders are targeting them.

John Molino, deputy undersecretary of defense for military community and family policy, said last week the department would begin teaching service members how payday loans can lead to an endless cycle of debt.  A study released last month by two professors at the University of Florida and California State University found "irrefutable geographic evidence demonstrating payday lenders are actively and aggressively targeting U.S. military personnel."  In 12 of 19 states surveyed, the study found the single greatest concentration of payday loan stores in a county with a military base. Those states are Arizona, California, Colorado, Delaware, Florida, Kentucky, North Carolina, South Carolina, South Dakota, Texas, Virginia and Washington.

"Military folks tend to be young, they often come from financially vulnerable backgrounds and tend to have less education," said Christopher Peterson, a law professor at the University of Florida and co-author of the study. "All of these are reasons the military make particularly enticing targets for this type of loan."
…
Consumer groups have long criticized payday lenders for preying on poor and minority communities.  Loan stores often encourage customers to "roll over" debts after the two-week loan period is up, which only compounds the fees.  While it is difficult to know exactly how many service members get payday loans, Defense Department surveys indicate the number is between 9 percent and 12 percent. Congress’s investigative arm, the Government Accountability Office, concluded in a report that some junior enlisted members were not receiving the financial management training required by service regulations, despite warnings from top defense officials that debt problems can affect performance and unit readiness.  Military personnel are often reluctant to get debt management counseling because service members with severe financial problems risk losing security clearances incurring penalties or facing discharge.

Burden, the Fort Hood officer, eventually ended his debt cycle.  After clearing up his credit problems, he got a regular loan from a military loan company and paid off the $1,484 he owed, which included nearly $250 in accrued interest.
Some states have limited interest charges or restricted how often customers can get the loans….

Sermon:  "Usury! In 2008? In Ohio!" by Rev. Bruce Russell-Jayne

When Northern Hills Fellowship was first formed in 1961 this area was in the outer suburbs of Cincinnati.  Since that time, the metropolitan area continued to expand outward, surrounding the Northern Hills until today we are an inner suburb.  With time and the closing of some of the major industries nearby, several of our nearby townships function today more like inner city neighborhoods, and contain many working poor and immigrants.  In recognition of that reality, several of our members work to support Valley Interfaith Food and Clothing which serves the poor from Lockland and other nearby towns.  While many of us live in relative comfort, we do what we can to make things better for our church’s neighbors.  Our rummage sale this weekend did make several hundred dollars for our budget, but its real importance of lies in giving poor folks a way to shop for things they need.

The work our church does, admirable as it is, can only make a small dent in the problem of poverty.  UUs understand, maybe because we are a small movement in the overall scheme of things, that the churches alone don’t have the financial resources to take care of the huge needs out there.  UUs have always taken their religious values out into their communities and used them influence the powers that be to make American society more just.   We look for the root causes of poverty and oppression and try to make changes in the fabric of culture.  This morning, I am going to talk about a way we can make a big difference to people in need.
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When I was in Ogden, I was part of the Utah Coalition of Religious Communities or CORC for short, whose primary concern was issues of poverty.  CORC lobbied the state legislature for more money for health care for the poor and for reductions in the sales tax on food.  Just before I moved to here, I got involved in a CORC project to investigate the practices of payday lending businesses.  I visited several of the payday lender stores to learn how they actually operate.  CORC sent the data we collected on their lending practices to the Consumer Federation of America, a national organization trying to do something about them.  Ever since I moved to Ohio I have had my eye on the payday lenders here.  I’m sure you’ve noticed them with their colorful, highly visible building signs, there seems to be one at almost every little commercial strip – especially in the poorer sections of our city.  On Thursday, I counted ten of them on my drive out to lunch and back.

I am going to vote Yes on Referendum #5 on the current election ballot, but as with any social issue, I urge you to learn all you can about the issue and decide for yourselves how to vote.  If you agree with the payday lending industry’s television ads which claim they are all about providing financial choices for the middle class and jobs for Ohioans you can certainly disagree with me and vote no.  But, since you happen to be here now, let me give you an example of how they work so you can see why I am so concerned about these quick cash stores.  This story was reported in the magazine of the American Association of Retired People.

“Shortly after a heart attack forced her to retire, Sandra found herself short of cash.  Her ex-husband had fallen behind in alimony payments, she says, and her monthly disability checks didn't quite cover all her bills. “Times were hard,” says the 57-year-old former insurance agent.  On a nephew's suggestion, Sandra went to a business called First Southern Cash Advance in the farming town of Clinton, North Carolina.  The company, known as a payday lender, offered an attractive deal: with no credit check, it would lend her $150 until the following payday.  All Sandra had to do was fill out an application, show utility bills in her name, and write a postdated check for $175 (the $150 loan amount plus $25 interest).  Sandra got the $150—and paid her overdue telephone bill. "It felt pretty good," she says.

Pretty good, that is, until the next month, when she was supposed to repay the loan.  Her ex-husband still hadn't paid the alimony.  As a result, Sandra couldn't pay back the $175 she owed.  Desperate to cover her postdated check, she borrowed money from a second payday lender.  Then she went to a third company and a fourth. "I kept digging deeper every month," she says.  “By the time I paid off one loan and the interest, I had nothing left.”  And she wasn't alone.  During her monthly trips to the various lenders, Sandra started seeing the same faces over and over again: people trapped in debt cycles similar to hers.  “I'd say, 'My God, look at the money these places are making off the same people month after month.”  Eventually Sandra sought out a legal aid attorney, who filed a lawsuit against one of the lenders and told Sandra to stop making payments.  By then the North Carolinian was forced to give up her apartment and move into a trailer in her brother's backyard.  She still hasn't been able to recover.”

The title of my sermon calls this practice Usury – that’s a pretty strong term.  Usury has been prohibited for pretty much all of recorded history.  In Biblical times, usury simply meant charging interest.  In the Torah we read, “If your brother-Israelite is reduced to poverty and cannot support himself in the community, you must assist him as you would an alien or a stranger, and he will live with you. You must not charge him interest on a loan, either by deducting it in advance from the capital sum, or by adding it on repayment.”  As we know, over the centuries, charging interest has become acceptable as long as there is no intent to commit injustice, and the definition of usury now simply means charging a higher interest rate than is legal.  The loan rate on my house is 6-3/8%, on my cars about 9%.  I can get a small loan on demand from my credit union at 12% interest.  My credit cards charge as high as 29% interest, and I think that is highway robbery!  Ohio payday lenders typically charge customers annual interest rates up to 391% !  Obviously, charging $25 interest on a $150 loan is exorbitant, and it shouldn’t be legal.

These ridiculous interest rates are only the beginning.  The problem is made worse by the fact that the money lenders won’t allow people to make partial payments.  So, if you were short $150 to pay the rent, and you borrowed it, two weeks later in addition to your normal expenses you would have to come up with an extra $175.  When your income is running close to or behind expenses you are lucky to have any extra.  It is even less likely most poor folks will have the full amount of the loan only two weeks after they borrow the money.  The payday lenders know this.  They don’t allow the borrower to pay what they can, a little at a time.  This forces them into re-borrowing the money, with another huge chunk of interest tacked on, over and over again.  The lending companies claim they are only there to help their customers meet their needs, but the payday lenders admit that their high interest product, marketed as a quick fix for a financial emergency, is designed keep customers borrowing again and again to pay off previous loans.  Once they have them ensnared they keep them trapped in a cycle of ever-mounting debt.  It’s like an addiction, too easy to get in and too hard to get out.  In truth the owners of these lending store chains have little concern for the well-being of their customers; rather they are preying on the vulnerabilities of the poor.

While this practice is sending countless folks further into poverty, there has been a surge in new quick cash outlets due to it’s extremely lucrative profit margins.  “Growth in the payday loan sector has exploded since the early 1990s, from about 300 stores in 1992 to more than 20,000 today, according to industry estimates.”   Federal Deposit Insurance Corporation chairwoman, Sheila C. Bair said, "There is a huge demand for small-dollar, unsecured loans, but there are far too few low-cost options available for consumers."  She is encouraging banks to offer small-dollar loan products that are affordable.

But while we work to get that to happen, predatory lenders need to be stopped, or at least held in check.  The military saw performance decline as the marines, soldiers, sailors, airwomen and men, caught in the debt trap fretted over their families’ financial situations.  A year ago, “the United States Congress passed a bill that, among other things, limits payday lending's interest for military personnel to 36% Annual Percentage Rate.”   This is a good example of what needs to be done to protect everyone, not just service people.  A few states have also enacted legislation.  When Georgia, formerly one of the worst places for predatory lending passed laws restricting corporations chartered in their state, several of them moved to Utah.  While I lived in Utah, I learned it is very friendly to business, and the state legislature was reluctant to regulate even the most egregious business practices.  The Ohio legislature has been slow to do something about the abuses of payday lenders, but this last session they passed a law to cap interest rates at 28%.

Now I am not anti-business or anti-capitalistic; I understand our economic system provides many benefits.  Loan companies, like any other company, need to make a profit, and people won’t invest in them unless they give high returns.  Investors, and I include myself in their number, I have a little money for retirement invested in the stock market, want our nest eggs to grow.    Often, investors take little responsibility for the consequences of the practices of the companies they give their money – as long as there is a good profit.  But, ignoring the human cost of a business practice that pushes people further and further into debt in order to make more money for investors crosses over the line into selfishness and greed.  The process becomes a form of indentured servitude
between borrower and lender.  That’s where we are with the predatory lending industry – institutionalized greed.  I know all of us are very concerned about the financial turmoil we have been hearing about for weeks now.  The mortgage crisis, the main source of the current market meltdown, is another example of a financial practice which showed little concern for the human side of the equation until after it had caused so much harm.  Analyzing and solving the issues of high finance is beyond the scope of this sermon, but while we wait for the MBAs and economists to right the financial ship, we can take action on payday lending and send a signal that we are tired of unethical financial practices.

Payday lending is also an issue of human rights.  All of us need to feel secure that we can provide for the health and well-being of ourselves and our families.  Our standard of living must be adequate to pay for food, clothing, housing, medical care and necessary social services.  We need this to be true even if we are unemployed, sick, disabled, widowed or retired.   When people fall on hard times and need a little extra money to get by, they need a way to get it that doesn’t add to their economic fears.  President Franklin Roosevelt said, “True individual freedom cannot exist without economic security and independence.”  Payday lending, as it is currently, is taking away people’s economic security and making people less capable to take care of themselves.  The usurers are reducing people’s humanity, and that meets my definition of a sin.

You may have heard about Muhammad Yunus who won the Nobel Peace Prize last October for his work combating poverty through the Grameen Bank which gives small loans to poor people.  I want to tell you about him because of his micro loan program, and because I am proud to say we both attended Vanderbilt University.  He earned a Ph.D. there studying economic development then returned to his home of Bangladesh.  The following is excerpted from Vanderbilt Magazine.  “The Grameen Bank began in the village of Jobra in 1976, when Yunus gave $27 to 42 self employed crafts workers.  He reasoned that if financial resources were made available to the poor on terms and conditions that are appropriate and reasonable, “these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.”  Yunus’ concept of microcredit grew from the $27 he loaned out of his own pocket into the Grameen Bank, which has loaned 6 billion dollars to almost 7 million borrowers.  Despite lack of collateral or signed loan documents, 99 percent of the loans have been paid back—a rate unheard of elsewhere in the banking industry.  Grameen’s agents travel by bicycle to villages to find women whose circumstances might be changed by the means to buy laying hens or honeybees or materials to make fishing nets.  It is also part of the bank’s mission to help educate women.  Borrowers pledge to have small families, oppose child marriages and dowries, and to send their children to school, among other things.”

I am just so inspired by this story – as much by the idea of a bank with a heart as by the fact that the program is helping to bring peace and development to an impoverished part of the world.  As I have said before, I am no economist; I don’t have a specific plan for how to solve all the problems of poverty in Ohio.  What I do have is a strong belief in the worth and dignity of every human being and in the fight for human rights.  We come to church to learn how to live out of our belief system as we confront the difficult issues of our lives.  We start from our beliefs and work toward the answers.  So, I’m not exactly sure what this would look like, but what I want to see here is banks with heart.  Banks with heart would loan money to poor people at affordable rates and help them get ahead.  I have a couple of leads from other UUs on how people can participate in micro-lending.  If you are interested in this, will you please let me know?

Banks with heart – that’s certainly not Payday Lenders.  Helping people become less dependent on Payday Lenders and getting rid of as many check cashing stores as possible would make a big difference to our neighbors in need.  I believe the state of Ohio has a fundamental obligation to protect people from excessive interest rates and defective financial products.  Ohio’s mayors say the payday lending debt trap pushes many borrowers into bigger financial problems, such as bankruptcy and foreclosure, that result in higher costs to cities and taxpayers.  The Republican and Democratic leaders of the Ohio Legislature endorsed the new laws and Governor Strickland signed them. Yes on 5 keeps them in force.  I urge you to take action to end Usury in Ohio.