Thursday, November 11, 2010
One of the most repeated prohibitions in the various laws of the Old Testament is the prohibition against usury? But what is usury? Is it the charging of any interest? The charging of discount points? The charging of interest on loans to the poor? The charging of any loan terms that are disadvantageous to the poor?
At this link is a very well done, even handed, look at attempts to regulate out of existence the modern institution of payday loans. Here are two fundamental points for debate. First is: "Are payday loans usury?" My initial reaction was "of course" until I considered the matter further. Now I'm not so sure. It appears that the usurious interest rates estimates come from taking the total fee for a short term loan (say two weeks) and annualizing that amount. But how much of that fee represents the time value of money (the pure rate of interest), how much of it represents a fee for the direct costs of the business, and how much of it represents a risk premium for the very real threat of borrowers skipping out on the loans? Apparently, the overall return to payday loan companies is a rather unspectacular 10%.
Secondly, if we do conclude that payday loans are usury, should Christians be in favor of banning them, much like the height of the social gospel movement when Christian voters banned drinking, dancing, and shopping on Sunday? Should we consider the evidence that when payday loans are put out of business, poor people turn to other avenues such as over-drawing their checking accounts and paying penalties, or worse? What are the parallels (or not) between the arguments for governmental prohibitions against payday loans and governmental restrictions against abortion. I hear some Christians say "I am anti-abortion but pro-choice." Should the same standard apply to payday loans: "I believe that payday loans are immoral but I believe that poor people ought to have that choice." But, if we argue against banning payday loans, what can we do, as Christians, to help poor people have other options when, as the video spot asks, the transmission in the car breaks down and they need that car to get to their job?