By Dr. Frederick D. Haynes III
The recent unveiling of the national monument honoring the late Dr. Martin Luther King, Jr. reminded our nation of the leadership that led to people of all races and walks of life recognizing that America needed to live up to its own creed. The widespread news coverage evoked memories that many of us continue to hold dear – especially the words of our martyred prophet.
Yet while we remember his words, we must also embrace his works, continuing the quest for freedom and his now world-famous Dream. In 2011, it is time for this nation to finally reckon with the financial injustices allowed to continue. As a nation and as a people we must find the will and the way to stop policies and practices that exploit people of modest and limited financial means.
One of the most egregious exploitations is an emerging trend among major banks to offer advance deposit loans or bank payday loans. When the bank repays itself, the customer is left with about half of the monies from that deposit, forcing yet another cycle of loan and interest charges to cover other living expenses. Although Wells Fargo was the first major bank to offer this type of loan, Fifth Third Bank, Regions Financial and U.S. Bank all now offer these loans.
Only bank customers with direct deposits from employers or government benefits have access to these loans. Nearly 25 percent of the transactions occurred with Social Security recipients. Further, older customers were 2.6 times more likely than others to use this type of loan.
If you’re thinking that this loan sounds like a street corner payday loan, you’d be right. Just like storefront payday loans, these newer bank payday loans charge triple digit interest too. A key difference is that while 17 states and the District of Columbia have enacted interest rate caps of 36 percent or less, federally regulated banks appear somehow exempt from state laws.
In the meantime, storefront payday lenders are more common than fast food restaurants – especially in my church’s neighborhood. There are 20 payday loan stores within a five-mile radius on my church. As a pastor and community activist, I have personally seen how quick cash payday loans wind up placing borrowers in financial debt shackles.
More than a year ago, the Center for Responsible Lending warned against the dangers of bank payday loans. According to CRL, although marketed as a short-term loan, these bank loans lead to an average of 16 loans and 175 days of indebtedness – twice as long as the maximum length of time advised by the Federal Deposit Insurance Corporation (FDIC).
If Dr. King were alive today, I believe he would decry the lending practices that rob the poor of their few dollars and make rich those who prey upon others’ financial misfortunes. Nationwide, 12 million Americans are entrapped in some kind of payday loan with interest rates of 400 percent or even higher. Another CRL research finding was that this deceitful lending product reaps $5 billion each year. The vast majority of payday lending – 76 percent – is by borrowers paying off one loan and quickly taking out another.
This practice of lending is especially troubling when one considers that banks, according to the Federal Reserve, are able to receive loans with interest rates of less than one percent.
At a time when 14 million Americans are unemployed – 44 percent of them for 27 weeks or longer, and another 1.1 million discouraged workers who have stopped looking for jobs because they feel none are available, it is simply immoral to allow this kind of legalized loan-sharking to prey upon people who find themselves a few dollars short of needed cash.
With the enactment of Dodd-Frank’s financial reform, as a nation we must find the collective will to protect those who toil at modest wages. Nor should we tarnish what ought to be golden years for those who have already devoted their lives to raising families and earning an honest wage.
As Dr. King wrote in his 1963 Letter from a Birmingham Jail, “We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects us all.”
Ending oppressive, predatory lending is the right thing to do for all Americans. The only remaining question is whether we have the national will to do so.
Dr. Frederick D. Haynes, III is Senior Pastor of the Friendship-West Baptist Church in Dallas Texas. Pastor Haynes champions racial, economic and social justices, using his books Soul Fitness, a daily devotional and Healing Our Broken Village.