Thursday, February 28, 2008

The high cost of pay day loans. . .

Not long ago I received the following report from the Center for Public Policy Priorities in Austin, Texas. If you don't know CPPP, you need to, especially if you care about the challenges facing marginalized, low-income individuals and communities. Check out their website at:

This particular report deals with predatory lenders and the impact of so-called "payday loans" on the poor in Texas. This is a case of our state needing to regulate an industry that is oppressing the already oppressed. People of faith should speak up clearly and often.


It’s the American Dream that if you work hard you get ahead.

But with the high cost of living these days, that isn’t always the case. Sometimes families run short of cash and turn to payday loans—short-term loans that give Texans a cash advance on their paychecks, Social Security payments, or veteran’s benefits. Millions of families use these loans when they are short of cash, but the high cost outweighs the convenience. Interest rates start at 400 percent APR and can surpass 1,000 percent, and it is typical for a worker to pay $180 in interest on a 10-day, $700 loan. More often than not, the individual is unable to repay the full amount within the short repayment period, and the debt balloons. In fact, most payday lending volume comes from individuals forced by the cost of the original loan to take out another and another. We’ve seen the devastating impact of subprime lending on the economy.

But what do payday loans cost families and communities in Texas?

New Study Calculates Financial Impact of Payday Lenders on Texas

A recent study by the national Brookings Institution calculates the financial impact of payday lending on Austin, Dallas, El Paso, Houston, Fort Worth, and San Antonio. In these Texas cities alone, unregulated payday outfits lent $1.14 billion in 2006. Statewide, these outfits lent at least $2 billion. To obtain these cash advances, working Texans paid at least $400 million in interest and fees, not to mention bank overdraft fees and credit costs ensuing from brutal collection practices. In other words, each year, payday loans cost Texas families nearly double what the state sets aside for financial aid so that aspiring students can attend higher education.

To view fact sheets for the six Texas cities, visit

Responsible Lenders Offer Better Options

Responsible lenders offer better options than payday loans. Several credit unions and banks are now offering short-term loans at a fraction of the cost of a payday loan. The FDIC is also partnering with three Texas banks in a two-year pilot project to identify best practices in affordable small-dollar loan programs that can be replicated by other financial institutions. These banks include Main Street Bank (Kingswood), Amarillo National Bank (Amarillo), and Liberty National Bank (Paris).

Responsible lending needs to be encouraged.

Texas Needs to Regulate Payday Lenders

To see our analysis of the problems with payday lending and our policy recommendations for standards and accountability, read As Payday Lending Spreads across Texas, Can It be Reformed or Regulated? (Dec. 2006) at and Unregistered and Unregulated: Payday Lenders Put Consumers
at Risk and Flout Texas Usury Laws
(Aug. 2005) at

Here's the Dallas fact sheet on the problem:

Number of non-bank check cashers 107
Number of payday lenders 98
Total value of checks cashed $246,742,765
Total value of payday loans $171,223,901
Total fees on checks cashed $6,168,569
Total fees on payday loans $27,823,884
Number of pawnshops 88
Number of banks and credit unions 366
Total value of pawn loans $21,157,915

What should be done? Any ideas?


Chris said...

I have a related question. Wasn't it congress who mandated sub-prime interest loans, who said that loans must be made to people who couldn't afford them?

Anonymous said...

Pilate had power. That is why the chief priests and rulers wanted to meet with him. They had the religious, political and money power. They had the power of the soldiers and the sword.

There was this man who was powerless from an earthly standpoint. He was a teacher. His principles are timeless.
1. Be shrewd in dealing with people.
2. Be trustworthy with money in your care whether little or much.
3. If you can’t be trusted to take care of a rent house, you won’t ever have your own house.
4. You cannot serve God and money. It is one or the other.
5. Many religious/political leaders love money, justify themselves, but God sees right through it.
6. What is valued among men is despised by God.
7. Divorce is a set up for adultery.
8. Those who ignore the poor and sick are lost.

This powerless teacher was did what all humans do. He died. So did Pilate.

Guess whose tomb was empty on the third day. Not Pilate’s.
Luke 16
Larry Wishard

Anonymous said...

This makes interesting reading. The more evangelicals in an area, the more pay day lenders!

Research finds geographic link between conservative Christian population and high-interest loan locations

February 11, 2008 --- Payday lenders, creditors that charge interest rates averaging about 450 percent, are more prevalent in Conservative Christian states, according to a new study coauthored by University of Utah law professor Christopher Peterson. The study, which is based on the most comprehensive database of payday lender locations yet compiled, maps a surprising relationship between populations of Christian conservatives and the proliferation of payday lenders.

Unknown said...

Chris, I think it was the Loch Ness monster. At this point, I have the same amount of evidence for it as Congress. Do you have any source that's not a talk show host? I really would like to see any evidence of this.

Anonymous said...

Lee, interesting indeed. I'll look at the article and the research. Thanks for posting. I'm wondering if Evangelical preferences in our national life and history might also explain why it took us until 2008 to discover that a woman could be a serious contender for President???

Alice Mae

Anonymous said...

Payday Rep, it seems to say that the interest rates are higher where there are predominate groups of evangelicals, translated, perhaps, right wing Republicans who are politically willing to allow for higher rates and proliferation of such lenders.

Anonymous said...

Payday Rep:

I noticed you didn't say anything about the real issue: not who is lending to who, but on what terms. But I guess 400% + is pretty hard to defend.

Anonymous said...


I've been making plans (however limited) to make this very issue a focus of my public life and ministry. I'm hoping to help build a community group where I live (mid-cities) with two united approaches to the payday lending problem: community education and community resistance.

Your writings about the realities of community organization at CDM have had a big impact on my thinking on this issue. I foresee the education initiative as both empowering and employing my neighbors. I foresee the resistance initiative as bringing the resources of local government and "honest" banks into play.

I'll have to write you soon about further details (possible players, etc.). I'd appreciate prayers for wisdom in the meantime.

Jeff W

Anonymous said...

Yes, these places are generally found in the not-so-wealthy neighberhooods. I had one right accross from my house in Memphis and asked the manager what sort of interest rates would be charged for a $500 loan. After telling me, he reminded me that everything was done "in accordance with the law."

That is the precise problem. Legislation is made to protect people and ensure fairness. Yet somehow, an oppressive industry has found a way to use the law to their own advantage. Some things never change.

"Our Father... Let Your kingdom come and let Your will be done on earth as in heaven."


Chris said...


I think the sub-prime mess had its genesis in the Community Reinvestment Act of 1977 under the Carter administration.

Larry James said...

Jeff W., great to hear your plans! Let us know if and how we can help/partner. Mohammed Yunis, founder of the Graamen Bank and Noble Peace Prize winner for his microloan revolution, when asked what could be done in the USA that might have comparable impact on the incomes and economic benefit of the poor in this country said that the best thing we could do would be to eliminate pay day loans from our economy.

Payday Rep: the interest rates you charge are the point. Immoral comes to mind. And then, I think you miss the point of the Utah study. . .at least the connection I'm seeing between Evangelical theology/worldview and the prevalence of payday lending: while your industry may target such groups in your marketing, the fact that these states allow such relates to the connection between such theology and a parallel political value system that applauds unregulated capitalism. The policy and the theology are both all wrong.

Unknown said...

If these people can't make it in Austin, TX, they are doing something wrong. Payday loans are not their problem, their problems go much deeper than that. With a median price of a house at less than 200k, they could work at McDonald's and afford a less than average house. A $300 payday loan is not going to put these people under, they are either already really far in debt, or they are buying things with their money that they shouldn't. Stop blaming the payday industry and start putting some responsibility on the idiots that are making bad decisions. I use payday loans, and I am out of debt because of them. Be smart, and they are a great help!

Unknown said...

Chris: I'm glad you think so. Once again, is there any evidence tying this legislation to payday abuses? Sorry to keep pushing for facts - I know it's inconvenient. And no, I don't mind putting the burden of proof on the one making the claim in the first place.

But looks like you have a friend in Grant who can abhor the unwashed masses and be so glad you're gosh-darn good enough to avoid being one of them. Huzzah for you!

Chris said...


If you read my first comment you will see I am not talking about payday abuses. I am talking about sub-prime loans, which in both cases have high interest rates in common.

Unknown said...

Larry, you are wonderfully open-minded about commenters, but can you delete the previous one and the earlier one sent by a representative of this "industry"? Maybe we can't shut down the stores but at least we can keep them from advertising on our sites.

Larry James said...

Charles, good suggestion. Done.

Sudipta Das said...

well many families struggle every month, working hard to make ends meet. Consumers who run short of money before payday probably cannot manage to borrow from a payday loan store. High cost loans that must be repaid on the next payday to keep the check from bouncing usually don't solve a financial crisis.

sudipta das
small business grants

Anonymous said...

In other words, each year, payday loans cost Texas families nearly double what the state sets aside for financial aid so that aspiring students can attend higher education. And because of their payday loans, many texan families have bigger debts because of bigger interests.

Larry James said...

Commercial ads are not allowed on this site.

Larry James said...

No commercial ads will be allowed.

raya said...

insightful. gr8 info shared.
the thing I love about Payday loans is that they are meant to be short term and can help in a difficult situation if you are running a little short on cash during the month.

Unknown said...

Consumers who run short of money before payday probably cannot manage to borrow from a payday loan store. High cost loans that must be repaid on the next payday to keep the check from bouncing usually don't solve a financial crisis.

Payday Loan

Payday Loan in San Antonio said...

The information that you have shared in this post is very informative. I was once very anxious about payday loans and today, I came to understand its use.