One of the most damaging influences upon the more vulnerable communities amongst us is the terrible scourge of payday lending. If you’re not aware, this is the practice of making short-term loans in anticipation of the next “pay day”. The loans incorporate a very large “administration” or “establishment” fee and then high interest. The overall amounts repaid may not be too much but since they are repaid over a short term the effective interest rates are so high as to merit the descriptor “immoral”.
The reality is that payday lending preys upon the more vulnerable in Australia society. When I was ministering in Neutral Bay, an affluent suburb on the Lower North Shore of Sydney’s harbour, we simply didn’t come across these businesses. Now that we’re in Macquarie Fields, one of Australia’s more underprivileged suburbs, I am seeing many, many payday lenders and many, many people who are using their “services”. The reality is that better-educated, consistently employed people don’t need to borrow short-term. Even if they have cash-flow problems they have more alternative resources available to them and more awareness of other options. There’s a reason that Cash Converters don’t have a branch in Mosman or Vaucluse.
To demonstrate how pernicious this model of lending is, I’ve analysed a sample of the most prominent lenders in Australia. By “prominent” I mean “google for ‘short term loan’“. I’ve assumed a $300 loan over as close to 3 weeks as I can (since this, anecdotally, is typical of what our clients at Break the Cycle, Glenquarie are getting) or whatever terms the company would offer. All fees/interest are rolled in together (since the distinction is academic when you have to repay the loan). The short-term nature of the loan is the real problem since while the interest rates themselves are bad it’s the “loan establishment fees” of e.g. 20% that do the most damage. Imagine, 20% charged over a short period, and then high interest rates on top. I’ve not even included any late fees which are especially punitive.
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Nimble‘s rate is particularly crippling. The irony is that their current advertising slogan is “just move on” as though taking out a short-term loan lets you just “get on with life”. The reality, of course, is that all it does is delay the problem and make it far bigger when it crops up 30 days later and the first payment needs to be made.
Of course, at this stage the lenders will exclaim that they promote responsible borrowing (and yes, each one has a link to their policies which speak about being upfront about charges etc.). Some even link to the Australian government’s smartmoney site. Does this discharge their own culpability? Hardly. The reality is that those in financial stress often are aware, if only partially, of quite how expensive the process is. They just don’t have a choice about it. Yes, in one sense their customer has a “choice” but the reality is they are feeling like they have no choice at all and the payday lender provides a quick way out, at least in the short-term. There are other ways to make money that don’t exploit people at their most needy. Again, if you don’t think this is exploitation of the most needy then show me the Cash Converters shop in Mosman.
The rise is perhaps best showcased by online lender Nimble, which offers quick loans of up to $1200 that can be approved through its website within minutes.
Nimble is hoping to distance itself from an industry often criticised for predatory lending practices and says it does not target disadvantaged customers on welfare. The company’s chief executive, Sami Malia, said a typical Nimble customer earned $65,000 and was about 34 years old. There were some borrowers who earned more than $100,000.
“I shiver a little bit when I hear people talk about payday lending, because it has quite a negative stigma attached to it,” he said.
Despite this, Nimble’s product is similar to many other payday lenders. Borrowers seeking quick cash can get loans of up to $1200 in their bank account within minutes. The company’s marketing portrays itself as fun and cool, with quirky television ads and a chatty social media presence.
As Christians we have a particular indignation about these things. God simply hates the exploitation of the weak and vulnerable, not least when it comes to lending money.
Ex. 22:25 If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest.
Lev. 25:35 “ ‘If any of your fellow Israelites become poor and are unable to support themselves among you, help them as you would a foreigner and stranger, so they can continue to live among you. 36 Do not take interest or any profit from them, but fear your God, so that they may continue to live among you. 37 You must not lend them money at interest or sell them food at a profit.
Psa. 112:5 Good will come to those who are generous and lend freely, who conduct their affairs with justice.
Ezek. 18.13 He lends at interest and takes a profit.
Will such a man live? He will not! Because he has done all these detestable things, he is to be put to death; his blood will be on his own head.
Prior to the 16th Century these and other injunctions were understood to ban all interest. The Reformation brought a different view, looking not so much at the plain meaning but seeking to understand the intent and particularly the emphasis on unjust exploitation of the vulnerable.
Calvin therefore argued for the need to probe deeper and ascertain the general principles that seemed to underlie the Old Testament ban on usury in its original context. It was the purpose of the prohibition, not the prohibition itself, that had to govern Protestant thinking on this matter. “We ought not to judge usury according to a few passages of Scripture, but in accordance with the principle of equity.” For Calvin, the real concern was the exploitation of the poor through high interest rates. This, he argued, could be dealt with in other ways—such as the fixing of interest rates at communally acceptable levels. Calvin’s willingness to allow a variable rate of interest showed an awareness of the pressures upon capital in the more or less free market of the age.McGrath, A. (2007). Christianity’s Dangerous Idea: The Protestant Revolution: A History from the Sixteenth Century to the Twenty-First (pp. 333–334). London: SPCK.
Jesus, as He so often did, made the same point by not only repeating the proscriptions but also emphasising the positive loving way to lend,
Luke 6.35 But love your enemies, and do good, and lend, expecting nothing in return, and your reward will be great, and you will be sons of the Most High, for he is kind to the ungrateful and the evil. … 38 Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you.
God, through the Bible, encourages generosity to the needy since that’s the gospel!
2Cor. 8:9 For you know the grace of our Lord Jesus Christ, that though he was rich, yet for your sake he became poor, so that you through his poverty might become rich.
Of course the riches here are spiritual; a restored relationship with God and all the blessings that are associated with that restoration. But one vital application is financial generosity (2Cor. 8:7).
Payday lenders are the exact opposite of generous. They make extortionate profits on capital lent, and they make them off the most vulnerable (again, Cash Converters in Mosman, anyone?). It is a deliberate choice to exploit people’s weakness and hardship. They compound their guilt by presenting it as an “easy” solution and suggesting that you can “just move on”. It’s the financial equivalent of a drug dealer. It’s no excuse to point to “responsible lending principles” on your website and to “cap” the loans at only 250%, nor to claim that they are “only meeting a need in the market”. So are drug dealers. Somehow it doesn’t excuse them either. The fact that payday lending is legal is almost irrelevant. It’s immoral because it’s exploitative.
So what can we do? Here’s a few things to begin your list.
- Be aware. Until I moved to ministry in a vulnerable area this really wasn’t on my radar. Now it is. But you don’t have to wait. Get your head around just how crippling the interest rates on these loans is.
- Don’t blame the borrower. In our experience many of them simply don’t have a choice. Yes, they’ve made foolish choices, yes they may have made purchases they shouldn’t in the past. But they’ve been exploited by someone making the most of their relative position of financial power.
- If you’re a Christian remember what grace is all about before you make the mistake of dismissing payday borrowers. The gospel is forgiveness and redemption given to the undeserving and helpless; to those who are culpable for the situation they’ve got themselves into but are also slaves to a greater power. If you’re not a Christian then I’d love you to understand that one of the ways that the Bible expresses the great news of Jesus is the showering of spiritual riches upon the systemically spiritually poor (2Cor. 8:9).
- Speak about it to others, particularly the media and politicians. The reason that payday lending has an increasingly poor reputation in the UK is that the Archbishop of Canterbury got onto a campaign that was swelling up. If we can make payday lending repugnant amongst our opinion makers then we’re a long way there.
- Send people to better options. At Break the Cycle, Glenquarie we manage a portfolio of No-Interest Loans through Good Shepherd Microfinance, the capital supplied by the NAB. Other organisations help with budgeting and getting proper finance plans in place. We love the work of Christians Against Poverty/CAPMoney. You might also like to check out YouNeedABudget. The answer to a cashflow crisis is a better short-term response that must be coupled with a long-term assistance with budgeting and money-management; empowerment, not sweeping the problem under the short-term carpet.
I’m hoping in the New Year to keep banging on about this and other ways the most vulnerable amongst us are badly done by.