A Predator in Our Midst

by Zach Kaufman

“If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them.” These words from Exodus 22:25 remind creditors to exercise grace and mercy when lending to the poor.

However, current lending practices in the U.S. reflect quite the opposite. Lending institutions have long forgotten this biblical call. Predatory lending practices—whether from the subprime mortgage market, payday lenders or credit card issuers—have made victims of those with the fewest financial options.

The most notable example involves the subprime mortgage market, a market for those who don’t qualify for the prime market.As a result of less competition and regulation, the subprime market is ripe for exploitation by lenders. Exploitation comes in the form of excessive fee structures, variable rates that rise quickly or failure to take into account a person’s ability to pay.

Payday lending involves short-term small amount loans that carry exorbitant interest rates averaging 450 percent annual percentage yield along with steep fees for late payment or bounced checks. Statistics show that short-term payday lending debt can easily become a long-term phenomenon. An estimated $793 is repaid for a $325 loan by the average borrower. The last few decades have seen a proliferation of payday lenders, with more than 24,000 today.

The increasingly complex credit card industry is also implicated. Hard-to-decipher disclosure agreements disguise interest rate and fee structures, increasing the likelihood that penalty rates over 30 percent or expensive fees will be triggered. These rates can be triggered by missing one payment to any creditor or simply by signing up for a new card.

How can people of faith respond to practices that frequently disadvantage the very people who Jesus was most concerned about—the poor and marginalized?

We can start by using our own resources to support and advocate for socially conscious lending. Mennonite Mutual Aid (MMA), an Anabaptist financial and insurance services company, serves as an advocate on behalf of victims of predatory lending. Using its leverage as a shareholder, MMA supports resolutions calling for more just and transparent lending practices.

Financial institutions engaging in lending remain a powerful political voice inWashington. Although many states regulate small loans, standards vary greatly and some states offer no protection at all. Two years ago, Congress passed legislation to cap interest rates on loans to military families at 36 percent. Urge your members of Congress to support or cosponsor the introduction of similar legislation protecting all U.S. families.