"The rich rule over the poor and the borrower is servant to the lender." Anyone who has ever been in debt has experienced the truth of this biblical proverb. And let's be honest with each other--debt is something we know about.
According to the Federal Reserve Board, Americans are currently dealing with over $2 trillion in personal debt. This figure does not include home mortgages. Of this amount, over $800 billion is credit card debt, with an average interest rate of 18.9 percent.
A credit survey conducted by Visa a few years ago found that 48 percent of credit card owners only pay their minimum monthly payment. On a balance of $3,900 with an interest rate of 18.9 percent, paying only the minimum monthly payment, it will take 36 years to pay off the balance. The card holder will have paid $10,000 in interest. No wonder that in 2005 over 2 million Americans filed bankruptcy to seek relief from their debts.
Unfortunately there is an ugly underbelly of debt that these numbers do not reveal. In addition to credit card debt, there are billions of dollars turned over weekly in the so-called payday loan industry. Patrons of payday loans are typically folks that are not able to secure credit from banks, loan companies, or credit cards.
If, however, they have a regular job and a checking account, they are probably eligible for a short term cash advance. The patron signs a check made out to the loan company for the amount of the loan and a fee. The fee is normally 17.5 percent of the loan. On a loan of $150 the fee is $26.25. At the end of the loan period, usually one or two weeks, the loan company simply deposits the check.
I will let you do the math yourself, but if $150 costs $22.25 for two weeks, how much would it cost for a year? If you come up with an annual rate of about 450 percent, you are pretty close.
Looking at these return rates it should not come as a surprise that payday loans have become big business. One of the largest operators in Alabama, with 10 percent of the total offices operating, is "Advance America." With 2,400 stores nationwide, Advance America reported over $105 million in fees from their payday advance business in the first quarter of 2005. This marks an increase of $10 million from the first quarter of 2004.
There are multiple issues at work here that faith communities might help to address. The use of credit cards is driven by both compulsive consumerism, as well as poor cash management. The resulting debt, whatever its source, saps the financial strength of families and leaves them balanced precariously on the edge of bankruptcy and poverty. Houses of worship that offer money-management training and debt counseling provide a useful ministry to families trapped in these insidious debt cycles.
The payday loan issue is more complicated. Patrons of these services have often already slipped under the wire of so-called credit worthiness. In many instances the issues are not compulsive spending, but simply not having enough cash to meet basic needs. Families who turn to payday lenders often do so as a desperate last resort.
It seems particularly cruel to charge exorbitant fees to families and individuals already struggling financially. The Bible pronounces stern judgment on those who exploit the poor for profit. That same judgment falls on those who stand silent and let it happen.
James L. Evans is pastor of Auburn First Baptist Church in Auburn, Ala.