CBF Advocacy and Payday Lending Reform

  • CBF Advocacy efforts are designed to enhance and encourage advocates in CBF life working to make a positive impact in their communities where their mission work has encountered need. We will do so by

1) connecting them to fellow advocates within the Fellowship,

2) connecting them to experts and experienced advocates beyond CBF, and

3) giving strategic advice and counsel to increase effectiveness

  • CBF Advocacy will highlight opportunities for significant impact particularly in places and on issues where the church has not had an active voice and there is a chance for progress.
  • CBF Advocacy can create opportunities for pastors, laity and young Baptists to work through CBF to make a positive difference in the world

Why an initial focus on Payday Lending Reform?

  • Our people care:
  • CBF has church members, pastors, and field personnel that care and are already involved in reform efforts in many states, including Texas, Missouri, Louisiana and Alabama.
  • CBF is now working to enhance their voice on a national level at a critical moment of opportunity.
  • There is a strong biblical and moral basis for concern about usury and economic exploitation:
  • Exodus 22:25; Ezekiel 18:13; Nehemiah 5:1-3
  • Luke 6:34-36 and 16:19-31; Matthew 6:24
  • This is not an overtly partisan issue:
  • In many states, both Republicans and Democrats have led reform efforts.
  • Agreement among faith communities:
  • The three Abrahamic traditions, Judaism, Christianity and Islam, decry excessive rates of interest.
  • Among Christians, support bridges typical theological, partisan and racial divides.
  • Immediate opportunity for progress:
  • The Consumer Financial Protection Bureau (CFPB) has the authority to create national regulations and is expected to issue a rule in the next few months.
  • Many states with the worst lending practices also have a strong CBF presence.
  • This overlap creates an unprecedented opportunity for CBF voices to play a critical role in support of strong reform.
  • Experience and Expertise:
  • CBF leadership has been involved with the issue on a national level for several years.
  • Stephen Reeves currently serves as the Co-Chair of the Faith & Credit Roundtable.
  • Ability to work with others toward a common goal:
  • CBF churches and leaders are comfortable working in interfaith settings.
  • Several CBF churches currently partner with other, historically African-American Baptist churches through the New Baptist Covenant for joint mission and advocacy efforts focused on payday lending while promoting racial reconciliation.

Frequently Asked Questions

Why would anyone take out these loans?

Payday lenders have created an industry that preys upon vulnerable people and intentionally traps them in a cycle of debt. Many people who take out payday loans feel that it is their quickest or best option. A payday lender located right in their neighborhood, with slick marketing and an inviting environment seems like an easy and responsible choice. When faced with the cost of these loans, borrowers are overly optimistic about their ability to repay without having to re-borrow. This quickly escalates the cost and compounds the problem. Customer surveys show that when caught in the cycle of debt created by payday loans, borrowers end up turning to sources of help that were available before they took out an initial loan.

What are the loans typically used for?

80% of payday loans are taken out to pay off previous payday loans. While marketed as a short-term solution for emergency expenses, neither is typically the case. According to borrower surveys, 69 percent of loans are used for routine, recurring expenses, and the two-week loans often result in five months of debt or more.

What will people do if these loans are limited or banned?

There are other options: credit unions or longer term loans that don’t have 400% interest. But it is also important to note that 25 years ago, these loans did not exist. In states that have banned or restricted payday loans, surveys show residents are pleased they are no longer available.

Why is federal regulation needed to fix this problem?

State-based small loan laws have resulted in a patchwork of regulations and dramatic differences between states. Currently, 14 states and the District of Columbia prohibit or tightly regulate payday lending while in other states there is no limit to what can be charged. When faced with new state regulations lenders often modify business practices just enough to find a new loophole or evade the law. Many lenders are publically traded with a national footprint, they should be regulated accordingly.

Isn’t this a problem that would be better solved by education or personal responsibility?

Education is important and many churches offer financial literacy to their communities. But ultimately, the behavior that needs to be regulated is not the customer’s: it’s the behavior of lenders. For years, our states had the wisdom to ban usury. Today, payday lenders are pushing a morally corrupt product.

Why not allow free market competition to fix this through driving down costs?

Thus far, free market competition has had little effect in driving down costs.In states with a rate cap, payday lenders that should be in competition tend to have interest rates at roughly the same level. In states without a rate cap, they still charge roughly the same amount. But payday lenders aren’t competing with each other’s price. What matters to their business model is convenience and trapping individual customers that will be stuck in the same loan for months at a time.