What happens to a dream deferred?” Langston Hughes asks in his classic poem “ Harlem.” Whether it is the dream of owning a home, paying for college, or making that final payment on a car, when the way of the world puts our dreams out of reach, what are the consequences? As the last line of Hughes’ poem suggests, those dreams may “explode.”
Today millions of American dreams are exploding into debt. Small-dollar, short-term payday loans—at outrageous annual percentage rates, as much as 1,000 percent in some cities—are offered to those experiencing a range of cash-flow problems. For larger expenses such as homes and cars, predatory lenders grant loans at higher-than-prime rates to borrowers whose credit history and financial status suggest that they are likely to default on loan repayments. Exorbitant interest rates are often coupled with hidden predatory charges that intentionally trap people in cycles of debt, forcing them to lean on lenders all the more. Pursuing the dream boils down to billions in losses for families, and billions in gross revenue for loan sharks.
Tom Allio, senior director of the Ohio Coalition for Responsible Lending (and social action director for the Catholic Diocese of Cleveland) says the lending debacle is like a “modern-day version of the story of David and Goliath.” The “Davids” are the faith-based groups, housing advocates, and community members organizing to go up against the “Goliath” of the lending industry. Here are the five stones they’re using—and that we can adopt—to slay this “Goliath.”
1. Develop an awareness campaign for your congregation focusing on the specifics of lending practices and how the industry targets people. It’s also important to inform your group about your city or state’s laws regarding basic protections for borrowers and restrictions for lenders.
2. Create a pledge for your constituency to sign that asks government officials to take action. A good example is “The Faithful Pledge,” proposed by the Ohio Coalition for Responsible Lending, which calls for interest rates on loans to be capped at 36 percent.
3. This is a big election year in more ways than one. The entire House of Representatives is up for re-election this year, making it essential for people of faith to arrange meetings with legislators. Larger congregations can establish committees to rotate attendance at hearings and arrange to meet with representatives. Faith leaders can supplement these by calling for one-on-one meetings with government officials.
4. Explore loan options with credit unions (visit the National Association of Federal Credit Unions, www.nafcu.org). Most Americans—not just the poor—need to take out a loan at some point in their lives, so investigate your options carefully. Presently, credit unions are the only financial institutions with a federally mandated cap on interest rates—no loans can have rates exceeding 18 percent, and charging pre-payment penalties to borrowers is prohibited by federal statute.
5. Reinvest in community banks. Predatory lending practices are rare in the smaller community banking institutions that typically work closely with lenders to help meet financial goals rather than trap people in cycles of debt. The Hebrew Free Loan Association (www.hflaclev.org) in Cleveland is a prime example of responsible lending made possible entirely by donations from the community, supporters, and friends. HFLA grants interest-free loans to people with demonstrated need who have been unable to obtain loans from more-conventional sources.
In this time of financial insecurity, predatory loan practices contribute to increasing economic hardship for millions of Americans. As Christians, there is much we can do to put a stop to the lending industry’s usurious acts, which not only steal the widow’s mite today but also rob from future generations.
Alexis Vaughan is editorial assistant at Sojourners. For more information, visit the Center for Responsible Lending (www.responsiblelending.org).