The Consumer Protection Agency announced last week the first in a series of several steps to curb payday lending. The watchdog group set up in response to the banking crisis of 2010 has promised to provide more protections against this practice.
While some erroneously believe that a free economy means virtually no limit to economic practice, Catholic Social Doctrine has always maintained that a healthy economy requires certain restraints to protect the poor. Payday lending — which involves charging even triple digit interest to those in enormous financial need — represents a practice at odds with sound economics and Catholic teaching.
Most often set up in very poor neighborhoods payday lending involves giving quick loans to the very poor in the hopes they can repay them on the next payday. However, several studies have shown that most often this becomes impossible and the borrowers pay far more in fees.
The new guidelines require a better effort to ensure people will actually be able to repay the loans. Offering a loan with knowledge that one will not be able to repay it and charging excessive rates of interest is simply usury. It is condemned by Catholic teaching, including by St. John Paul II who called it “a scourge that is also a reality in our time and that has a stranglehold on many people’s lives.”
We need to end payday lending in our country and provide stronger protections for the poor. Failing to do so leads to a weaker economy and a less just society.