Nebraskans vote to limit 'exploitative' payday loans

CNA Staff, Nov 4, 2020 / 14:01 pm

Voters in Nebraska sided with efforts to limit payday loans, passing an initiative Tuesday that the Nebraska Catholic Conference had endorsed as a means to protect the poor from becoming trapped in debt.

Over 80% of Nebraskan voters backed Initiative 248, which caps payday loans at a 36% annual percentage rate, the Lincoln Journal-Star reports. Previously, the legal lending rate was set at 400%.

Sixteen other states have similar limits, or prohibit payday lending altogether.

The Nebraska Catholic Conference was among the supporters of the initiative.

"Payday lending too often exploits the poor and vulnerable by charging exorbitant interest rates and trapping them in endless debt cycles," Archbishop George Lucas of Omaha said Oct. 7. "It's time for Nebraska to implement reasonable payday lending interest rates. The Catholic bishops of Nebraska urge Nebraskans to vote for Initiative 428."

Nebraskans for Responsible Lending was another backer of the ballot initiative, which was placed on the ballot after receiving over 120,000 signatures in support. Foes of high payday lending rates tried to pass similar limits through legislation, then turned to the ballot measure when that path proved unsuccessful.

Religious leaders, veterans groups, the American Association of Retired Persons, the American Civil Liberties Union of Nebraska, and other social welfare groups backed the initiative, the Journal-Star reported.

Critics of the measure said the caps will block credit from people who cannot get loans anywhere else and put the businesses that serve them out of business.

Tom Venzor, executive director of the Nebraska Catholic Conference, explained the need to cap payday loans in an Oct. 9 statement.

"In 2019 alone, payday lenders have extracted more than $30 million in fees from borrowers," Venzor said. Those who seek payday loans tend to lack a college degree, rent rather than own a home, earn under $40,000 a year, or are separated or divorced. African Americans also disproportionately seek payday loans.

"They turn to payday loans to cover basic living expenses like utilities, rent or mortgage payments, food, or credit card bills," said Venzor.

The Nebraska Department of Banking and Finance's 2019 annual report on payday lending practices said the average borrower was charged 405% at an annual percentage rate on a $362 loan, and took 10 loans in a single year.

"When borrowers are unable to repay their loan after two weeks, they usually have no choice but to take out a second loan to repay their first," Venzor added. "This inability to repay a loan can lead to a vicious 'debt cycle' which can continue for years."

Venzor explained that Catholic teaching rejects exploitative loans.

"Catholic social teaching is very clear on this issue," he said. "It recognizes that it is both morally acceptable to earn reasonable and equitable profits in economic and financial activities, and morally reprehensible to lend money at unreasonably high rates of interest (a practice also known as usury)."

Venzor noted that the Catechism of the Catholic Church rejects usury as a violation of the commandment 'Thou shall not steal'. St. John Paul II, in a Feb. 4, 2004 general audience, denounced usury as "a scourge that is also a reality in our time and has a stranglehold on many people's lives."

In February the Montana Catholic Conference backed federal limits on payday and car title loans. It encouraged voters to ask their Member of Congress to back the Veterans and Consumers Fair Credit Act of 2019. The bill that would limit the interest rate on payday and car title loans. The bill would expand the 2006 Military Lending Act rate cap - which only covers active military members and their families - to all consumers. It would cap all payday and car-title loans at a maximum of a 36% APR interest rate.

The U.S. Catholic bishops have backed the bill.

In July the Consumer Financial Protection Bureau, a government agency overseeing consumer protections, revoked federal restrictions on payday loans, drawing objections from the U.S. Conference of Catholic bishops. The rules were announced in 2017, but the bureau said their legal and evidentiary bases were "insufficient." The bureau said removing the rules would help "ensure the continued availability of small dollar lending products for consumers who demand them."

The industry collects between $7.3 and $7.7 billion dollars annually from the practices that would have been barred, the bureau said.

Archbishop Paul Coakley of Oklahoma City, chair of the U.S. Conference of Catholic Bishops' domestic justice committee, objected in to the changes in a July 10 letter that characterized payday lending as "modern day usury."

The Church has consistently taught that usury is evil, including in numerous ecumenical councils.

In Vix pervenit, his 1745 encyclical on usury and other dishonest profit, Benedict XIV taught that a loan contract demands "that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious."

In his General Audience address of Feb. 10, 2016, Pope Francis taught that "Scripture persistently exhorts a generous response to requests for loans, without making petty calculations and without demanding impossible interest rates," citing Leviticus.

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"This lesson is always timely," he said. "How many families there are on the street, victims of profiteering … It is a grave sin, usury is a sin that cries out in the presence of God."