About twenty years ago I made some terrible choices and found myself in a serious financial bind. The amount I needed wasn’t much — about $200 — but without it I wouldn’t have been able to pay my rent. I took out a payday loan that cost me $30 every two weeks. It took about eight weeks to get clear of the loan, resulting in a cost of $120 to borrow $200 for two months.
Was I fooling myself thinking the loan could be paid in two week? Not at all. In fact, I knew quite well that there was likely no way possible for me to pay it off in that timeframe. I knew precisely how much money I was going to be able to earn and how much my expenses would be during that two-week period. I had, roughly speaking, about $40 a week that I could apply toward the loan.
But $40 was not sufficient to cover the balloon payment of $200 that was due at the end of two weeks. So I had to roll over the loan, applying $15 a week to the new fees and saving $25 a week to be paid toward the principal. That is why it took me eight weeks to pay off the original loan: $25 a week for principal + $15 a week for fees = $40 x 8 weeks = $320 ($200 for principal + $120 for fees.
If you’re middle class and think of it in terms of interest rate, that repayment cost sounds appalling usurious. And it is. But as the poor will tell you, man does not live on APR alone. Having to pay an extra $120 was cheaper than having to find a new place to live. Yes, it was a bad deal. But it was better than all my other choices. I didn’t agree to the loan because I was bad at a math; I did it because I was desperate. And the payday lending company was more than willing to take advantage of my desperation.
How then do we solve the problem of rollover fee that take advantage of the poor when they are in dire straits? As I’ve argued before, I believe a helpful first step is to get churches and other faith-based organizations involved in providing alternatives to commercial lending agencies. The Worship Center Christian Church in Birmingham, Alabama seems to be providing a wonderful example of how Christians can help.
This past Sunday the church announced it will pay off the payday loans of 48 people — a combined total of more than $41,000 on high interest rates of 36 percent or higher.
“It’s kind of a ticking time bomb with high interest rates,” Senior Pastor Van Moody said in an interview after the service. “That’s why many people never get out.”
Those having their loans paid off will be required to undergo financial counseling and attend financial workshops so they don’t get in the same fix again, Moody said.
“We’re doing workshops, helping with budgeting,” said Vanessa Davis, chief financial officer of the Worship Center. “Everything they need to get a fresh start.”
The church took up a special offering on Sunday, in addition to regular tithing, to help pay off the payday loans. The money will be paid directly to those it is owed, not to the debtors themselves, Moody said.
The idea for paying off title loans came after Moody preached sermons on Feb. 21 and Feb. 28 about getting out of debt. He dressed in a prison uniform for one sermon to demonstrate that being in debt is like being in prison.
Moody asked people in attendance to fill out forms in the lobby after the service to detail what kind of debts they owed. Not all of the people filling out questionnaires were members. Some were just visiting, Moody said. The church is paying off debts for members and non-members, he said.
“We are a church of generosity,” Moody said. “We believe in meeting needs and being generous.”
This action won’t fix the larger problem of predatory lending, and many who are helped likely soon fall back into debt. But sometimes even small acts like this can be transformative since they allow people get out from under the crushing burden of debt. This sacrificial of generosity — and the financial counseling that comes with it — is the type of direct action more churches ought to engage in.
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