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Pay Day Loans

April 11, 2013

By John Bertsche
Originally Published: February 03, 2011

…economically depressed areas of the twin cities. I already new that these places prey upon poor people with usurious rates. But I was further educated when Phil Dick and I attended an Illinois Peoples’ Action (IPA) “Pay Day Loan” Teach-In at Centennial Christian Church on November 15, 2010. Numerous local churches and the synagogue were represented.

Persons wqith pressing immediate financial need are lured with offers of small cash loans, using car titles or undated personal checks as security until the loans are paid off. Interest rates charged readh 400 percent APR (Annual Percentage Rate) of the total loan! Payment schedules usually coincide with the borrower’s pay day, generally two weeks. Most of what is paid at that time is interest on the loan. At the end of the loan period (usually three months), there is a large balloon payment of up to 80 percent of the loan amount. The borrower is then encouraged to roll over the balance into a new loan, with the enticement of receiving the paid-off balance as cash.

This practice perpetuates the debt problem. Failure to meet scheduled payments results in seizure of automobiles, or overdrawn bank accounts, with the associated fees for the overdraft.

Two victims of these practices told their stories at the teach-in. In one instance, the victim’s faith community intervened, paying off all debts with a no-interest loan. In return, the individual’s credit card and checkbook were temporarily surrendered to the financial mentor assigned by the church. These were returned after the loan was fully repaid.

The second person has become increasingly entangled with multiple loans. Since no one intervened to help, bankrupty was the only option.

The IPA representative encouraged us to take petitions to our faith communities, supporting efforts to have the Bloomington City Council and the Normal Town Council enact a 35 percent APR limit in their jurisdictions. Legal counsel has advised that this can be done under Home Rule Guidelines. Were this limit to take effect, these usurious businesses may be forced to close. Most persons could still obtain needed loans from traditional sources that abide by the 35 percent limit.

Our Peace and Justice Committee will provide members of our congregation opportunity to sign such a petition. Both the Old and New Testaments strongly counsel business practices which benefit the poor rather than extort from them, as these businesses do.

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Writings and sharings from the Peace and Justice Committee of the Mennonite Church of Normal, IL.

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Writings and sharings from the Peace and Justice Committee of the Mennonite Church of Normal, IL.

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