Each year approximately 12 million Americans take out a payday loan. Payday loans are small dollar, short-term loans that have extraordinarily high interest rates attached to them. On average, payday loans have annual interest of 390 percent (APR) and are expected to be repaid in two weeks. As comparison, in 2016, the average annual interest rate for a credit card was approximately 13 percent. Borrowers are often unaware of these exorbitant interest rates and, as a result, are frequently unable to repay the cost of the loan plus interest and fees two weeks after taking out the original loan. According to CPJ’s policy report, What Justice Requires: Protecting Families from Payday Lending, “These loans disproportionately impact low-income communities of color and cast borrowers into a spiral of debt. The average borrower ends up taking out an average of eight loans to be able to cover the cost of the first loan.”
Sixteen states and the District of Columbia have placed regulations on payday lenders and have capped the amount that lenders can charge at 36 percent APR. However, most states remain unregulated or have high interest rate “caps” written into law. There is currently no federal legislation that protects all Americans from predatory payday loans.
The Military Lending Act
Despite this, one piece of federal legislation has been upheld and championed by advocates for ending predatory lending. Since 2007, the Military Lending Act (MLA) has protected members of the military from payday loans. The legislation capped the interest rate that lenders could charge active duty members of the military at 36 percent.
In 2006, prior to the enactment of the MLA, the Department of Defense (DoD) described payday lending as one of the top issues of concern for military families. The DoD’s Report On Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents explained that, “Predatory lenders seek out young and financially inexperienced borrowers who have bank accounts and steady jobs, but also have little in savings, flawed credit or have hit their credit limit.” The report went on to explain that, “Predatory lenders market to the military through their ubiquitous presence around military installations and/or through the use of terms to affiliate themselves with the military.”
However, a recent proposal from the Trump administration has directed the Consumer Financial Protection Bureau (CFPB) to suspend its proactive policy to supervise payday lenders for violations of the Military Lending Act (MLA). The proposal would weaken protections designed to protect service members and their families from predatory lenders.
The new proposal suggests that “proactive oversight” of lenders who serve members of the military is no longer necessary. Mick Mulvaney, the interim director of the CFPB, has announced that the CFPB will not continue to proactively monitor lenders, but instead will take action only when a member of the military files a complaint. This is problematic because the average service member may not be aware of the protections afforded to them through the MLA and may agree to the terms of a payday loan with an APR over 36 percent.
By looking past violations of the MLA, the CFPB is in essence turning its back on members of the military and opening to door to predatory lending practices.
A Public Justice Response
According to the Center for Public Justice’s Guideline on Government, “The government of a political community bears responsibility to legislate, enforce, and adjudicate public laws for the safety, welfare, and public order of everyone within its jurisdiction. The guiding norm, or principle, for such laws is public justice.”
To fulfill its role, government should prohibit predatory and deceptive lending. Congress rightly enacted the MLA to protect members of the military from harmful lending practices. Weakening the enforcement of the MLA is unjust; instead, it should be strongly enforced.
In August of this year, the Center for Responsible Learning submitted a letter to interim director Mulvaney and Secretary of Defense James Mattis, urging the CFPB to “...reverse its recent decision to suspend the supervision of payday, car title, and other lenders for violations of the Military Lending Act (MLA). We also urge the Department of Defense to ensure that the Military Lending Act is vigorously implemented without exemptions or loopholes to protect service members and their families from financial abuse.”
As Christian citizens, we should support public policies that align with the government’s God-given role, as well as policies that reflect biblical truth. The Bible is clear about usurious lending practices: God’s people are not to take part, but instead help their neighbors out of debt.
Deuteronomy 23:19 exhorts: “You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest.”
It is right for the government to protect members of the military and their families from usury, but government should take another step to protect all citizens from payday lending and usurious practices. Rather than weaken the protections afforded to military members and their families in the MLA, the federal government should work to extend the protections to all citizens.
While government has a unique and urgent responsibility in protecting members of the military and all Americans from predatory lending practices, institutions within civil society can also contribute to ensuring just lending.
Individual borrowers should make their best efforts to be informed and to manage their resources responsibly. However, Christians should call upon lenders to offer loans at reasonable, non-usurious interest rates. While there is nothing wrong with businesses seeking to make a profit, lenders should offer loans that do not exploit borrowers and should ensure that the borrower has the ability to repay the original loan. Businesses and nonprofits should also work to design innovative lending models to meet the needs of people in need of short-term, small dollar loans. Churches can also advocate for just lending practices. Offering an alternative to payday loans can help people avoid loans in the first place, which is especially helpful for borrowers in states where there is currently no cap on payday lending interest rates.
Predatory lending practices not only take a large toll financially on members of the military and their families, but they take a toll on emotional and mental wellbeing too. Falling deeper and deeper into debt immobilizes families and strains relationships. The government has a responsibility to uphold public justice and protect members of the military through the enforcement of the Military Lending Act. Likewise, we as Christian citizens along with civil society institutions have a responsibility to come alongside service members and others in our community who are struggling under the weight of unjust lending practices.
-Emily Fromke is a senior at Wheaton College (IL) studying political science and economics.