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Monday, October 16, 2006

Usury & Pay Day Loans

Pastor Russell Smith of Cincinnati Ohio writes a thoughtful post on Banking, Usury, Pay Day Loans - What Can We Do?

Shakespeare's Merchant of Venice was written against the context of a Roman Catholic society that banned Christians from lending at interest or "usury". The Jews of Venice, though hated, were free from this prohibition and served as lenders of last resort. In the story, one such lender put out money at interest to fund the business adventure forming the background of the story.

In the Church there have always been questions regarding the propriety of lending money at interest because of passages like Psalm 15 which asks the question "LORD, who may dwell in your sanctuary? Who may live on your holy mountain?". The question is answered variously in the Psalm, but the last description relates to the topic at hand. There, the righteous are those "who lend money to the poor without interest and do not accept bribes against the innocent. Whoever does these things will never be shaken."

This rendition is from Today's New International Version, which implies a no interest loan to the poor. On the other hand, translations like the New King James Version render the phrase in this way: "He who does not put out his money at usury" implying excessive interest which presumably would be an amount greater than the rate of inflation or monentary devaluation during the period of the loan.

Others argue that the prohibition against interest is limited to the needy, not for ordinary "business" transactions since, by definition, bankers don't lend to the needy, but to those with the ability to repay. Still others said that the interest prohibition applies only to fellow Israelites and other borrowers are by definition "fair game".

Suffice it to say our western society has since the Reformation opted for the second interpretation in practice. Most states have "usury" laws defining the upper acceptable limits of interest on loans. In practice though, Usurers often find sympathetic legislators to help them get around any practical limitations or move to a state without such laws. So the answer is not more "legislation" but godly intervention.

So-called pay day loans with annual percentage rates of 300% to 1000% can sink working families near insolvency in a few months. Such usury shops are becoming increasingly prevalent. The trend among people who formerly ran pawn shops is to transition into pay day loan operations ... it's more money without having to dust the merchandise or keep it under lock and key. When communities undergo economic transitions, see factory jobs laying off workers who are unable to replace their wages, then the pay day loan shops, title loan shops, and used car lots seem to become the only "growth industries" around.

The fastest solution to the pay day loan problem would be to emulate a non profit credit union profiled in a recent USA Today article called Breaking The Pay Day Loan Cycle.

In the story, the author relates how the North Carolina State Employees' Credit Union began offering their own version of the "pay day loan". They structured the program though, to funnel a significant portion of the interest into a savings account for the customer which allows them ultimately to have enough savings to escape the need for such loans. Despite the highly charitable ambition behind the loan, it was still greatly profitable and because the recipients of the loan were members of the nonprofit credit union, they would ultimately benefit from any interest they paid anyway.

Concerned Christians could easily start such a credit union on a national level and train local churches to be the representatives who offer this product - along with financial counsel and Christian support - to people trapped in the pay day loan cycle.

Or they could work with a local credit union who'd support their attempts to minister to people instead of just offering just a loan, however good the loan.

Unfortunately, the "Christian" Credit Union I approached on this issue didn't seize upon the opportunity... they mainly served overseas missionaries for whom pay day loans weren't a problem.

Let's remember our heritage though.

Christianity either created or redeemed the institutions we enjoy now, however much they have fallen on hard times, like universal education and hospitals. Without Christians caring for the ignorant and the sick, these institutions would never have existed.

It's time to get back in the world changing business in our culture by doing something instead of just talking about what other people should be doing.

There is a crying need for the spread of Christian nonprofit credit unions who will help the financially enslaved in the Name of Jesus Christ in the manner outlined above. The time is now. Will we rise to serve this mission field outside our doorstep? Or keep sleeping?

See follow up posts here: Community Development Credit Unions