We Must End the Cycle of Payday Loan Debt for Military, Veterans, and all Texans

As we commemorate Veteran’s Day and the great sacrifices our veterans have made for us, it is vital to think beyond the banners and parades and look at what we are doing as a community and a society to support our veterans. A recent Texas study found evidence that payday and auto title loan stores tend to cluster around veterans’ facilities in Texas. This is an alarming finding, because it illustrates an industry that preys upon the financial misfortune of our veterans. ! Throughout human history, governments have sought to protect the poor from exploitative interest rates on consumer loans. However, in Texas the rates charged for payday and auto title loans have been allowed to reach exorbitant levels.

In the Catholic faith tradition, as in most religions, we teach that taking advantage of individuals facing hardship is a form of theft. By that definition, Texas is in the middle of a crime wave. In our state, payday lenders collected $1.4 billion in fees alone in 2013. This is money that is being taken away from our families and out of our communities. This is money not being applied to grocery bills, rent, or medical bills. This is money being taken from those least able to afford the loss. ! The Catholic Church does not denounce seeking profit in private business. However, the current business model of payday lending has reached a point where it is exploitative. People are left destitute under the pretext of providing a service.

Payday lenders prey on borrowers who repeat loans. They earn most of their profit margin from borrowers who get caught up in a cycle of debt. For example, approximately 75 percent of all fees on payday loans are paid by borrowers who take out eleven or more loans each year. These are individuals who are stuck taking out new loans to make the minimum payments on old loans. ! Over time borrowers pay much more in fees and interest payments — often averaging more than 500 percent APR—than the original loan amount. It is a business model that pushes people farther and farther into debt, profiting as the borrower’s financial situation becomes dreadful. ! Usurious interest rates and fees pull money out of family budgets, leading people to become more and more dependent on the help of churches and other social assistance agencies. Our agencies are unable to keep up with this current pattern of financial devastation. When loan fees and interest payments come to monopolize a growing share of a person’s resources, it reduces the capacity of the poor to regain self-sufficiency.

I call upon all people of good will to help tackle this challenge. Pope Francis, like Benedict XVI before him, has been forceful in his disapproval of payday lending, calling usury “a dramatic social evil that wounds the inviolable dignity of the human person.” We have an obligation to speak out and act to guard victims of usury. ! I applaud the City of Midland for adopting an ordinance, which went into effect on September 1, 2014, to regulate this industry on a local level. I am also proud of Tom Craddick, District 82 state representative from Midland, who introduced a bill in the Texas legislature in 2013 to place regulations on payday lenders. We still have much work to do to establish fair limits on the fees and rates of interest for consumer loans.

We can start by supporting new rules aimed to close loopholes in the Military Lending Act. This act was put in place in 2007 as a way to protect active-duty soldiers from payday and auto title lenders who set up offices near our military bases, such as Goodfellow in San Angelo and Dyess in Abilene. Payday lenders seek young, financially inexperienced individuals with steady paychecks as fodder for chronic borrowing. The Department of Defense noticed the financial devastation payday lenders caused to troops, threatening their morale and readiness, and the threat to overall national security.

The new rules address the way that some unscrupulous lenders have managed to get around the law since it was first put in place. The updated Military Lending Act, with simple and fair rules, will cap rates at 36 percent, regardless of the other terms or the size of the loan. These rules are a significant start; however, more is still needed to benefit society at large. ! A statewide interest rate cap on personal loans would be the strongest way to tackle the crisis caused by payday lending. Acknowledging the political difficulties of such a cap being enacted, it is essential that we also do what we can to support efforts by the Consumer Financial Protection Bureau to put vibrant rules into place that curb the worst abuses of the payday lending industry.

People must have access to fair loans that can be repaid over time without further entangling themselves in an impossible cycle of poverty and debt. We will do well to explore ways to provide those in financial hardship with better alternatives, such as associations for mutual lending, savings and loans, credit unions, and emergency community assistance programs.

Our soldiers, our veterans, and our fellow Texans do not deserve to be exploited in their time of need. The human dignity of the individual person must be respected. The way we resolve this current moral challenge will demonstrate our character as a society.