Archbishop Wenski: Regulate Payday Loans, Address the Sin of Usury

Archbishop Thomas Wenski of Miami writes:

Victims of usury are often the working poor and elderly on fixed incomes who when faced with a financial emergency seek a short-term loan….legal forms of usury survive, in a form of predatory banking, known as “payday loans.”

Payday loans appear (and are marketed as) simple and straightforward help to someone in immediate need of funds before the next paycheck. Using that paycheck as a form of collateral, the consumer receives a short-term loan. When the paycheck arrives, the loan is paid off, plus fees and interest. However, in many if not most cases, it is impossible for borrowers to repay in the required time frame. This is because these loans are not only used for emergencies but often for recurring necessities (like food and rent) or to splurge on some impulsive purchase. Thus, the borrower becomes ensnared in a “debt trap” with the loans continually “rolled over.”

In the state of Florida, the average payday loan borrower takes out seven loans a year and pays an average 278 percent annual percentage rate (APR). …

As Pope Francis said, “Usury is a serious sin: it kills life, tramples on the dignity of people, is a vehicle for corruption and hampers the common good.”

A human economy places the person and not profit first. Human dignity, ethics, solidarity and the common good should be always at the center of economic policies. Legislators in the crafting of laws and regulations should seek to protect the most vulnerable from the predations of the unscrupulous. Lower interest rates — capped by law –— would protect those who need the ready access to capital that payday lenders provide. At the same time, the working poor need access to alternative sources of credit.