A recent editorial asked, “what were voters thinking” in reference to I-164, the initiative that will cap interest rates on payday and car title loans starting Jan. 1.
Well, the voters were thinking that 300 to 650 percent interest rates charged to Montana families struggling to make ends meet are outrageous, wrong and constitute modern day usury.
Regardless of your political views, this was a simple choice of right and wrong. That’s why nearly 72 percent of voters agreed capping the rate at 36 percent was the right thing to do.
If lenders cannot operate by charging reasonable interest rates – 36 percent under I-164 as opposed to the current 400 percent and higher – perhaps they need to reexamine their business model and diversify.
Data from the Montana Division of Banking show that payday lenders in this state make 56 percent of their profits from people who have 13 or more loans out during a year. This demonstrates the ugliness of their business model: It’s based on ensnaring people in perpetual debt and charging them outrageous interest.
The term “usury” is apt. Society has a long history of standing against exploitative lending practices, particularly lending that targets those who are already economically vulnerable. Numerous Biblical passages condemn high-interest lending to the poor. And at the time the U.S. Constitution was ratified, all 13 colonies had interest rate caps on their books.
You can read more about how faith traditions view predatory lending in a publication called “Modern Day Usury: The Payday Loan Trap” at www.captherate.com.
Before the lending industry lobby wrote its own state legislation in the late 1990s, which allowed lenders to charge triple-digit interest for payday and car title loans and exempted them from state usury laws, Montana got by pretty well without these predatory products. And we’ll get along much better without triple-digit interest rates.
Alternatives to predatory loans already exist and more are emerging. The Montana Credit Unions for Community Development program, which extends small loans at far lower interest than payday or car title lenders, reports that loans through its program grew 25 percent over the last quarter.
The fact is, predatory loans have never been a good option for people who need emergency money. They are like burning furniture to heat your home. If you need an emergency loan, better options include asking family, friends or your church community for help. Your employer may be willing to give you a true payday advance loan (usually at no interest). Even a cash advance on your credit card is better than putting yourself in a debt trap.
Predatory lenders make financial problems worse and benefit no one but the loan sharks. Voters in this state are pretty smart. Montanans should be proud of voting for I-164.
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