Part 3: Pay Day Lending and the Role of Local Government
by Jim Coston
(Note: This is Part 3 in a series on Pay Day lending and its effect on our Waco community. For the rest of the series, click here: Pay Day Lending in Waco. — ABT)
I had the privilege of serving as a City Councilman in Trenton, New Jersey, prior to coming to Waco. Despite what the national media may portray, the real action is in local politics. It is here that good government can offer immediate relief to citizens, foster opportunity and right wrongs. I believe the proposed ordinance to provide common sense regulation to the predatory lenders in Waco (also known as payday and auto-title lenders) will do all three.
As a former politician who drafted and passed legislation, I know that every ordinance produces unintended consequences. This is a given. And proponents like myself will bear some responsibility to respond to those unforeseen repercussions. Absolutely.
The fear of unintended consequences should not hinder or prevent our leaders from governing with purpose, that is from legislating intended consequences. It is these intended consequences that deserve some attention.
There are many fine details to the ordinance. I read it as having three main benefits for Waco and its citizens. The first requires each payday or auto-title lender to register with the City and to provide the names of its owners. This may seem a small matter; however, transparency is not one of the hallmarks of this industry. Knowing who is operating where can only serve the public good.
The second benefit concerns terms of lending offered to consumers. Payday lenders may not lend more than 20% of a consumer’s gross monthly income; auto-title lenders may not lend more than 70% of the value of an automobile. This provision should keep consumers from getting over-extended and stuck in a cycle of increasing debt. Furthermore, 25% of all payments must go towards reducing principals. Typical predatory lending practices keep the principal intact even as customers pay more and more in monthly fees. Those fees increase and accelerate, leaving the principal intact.
The third benefit requires these lenders to provide customers with information on available consumer credit counseling. Emergencies happen. People get sick. Cars need repairs. Unexpected expenses arise. There is a need among a portion of Waco citizens for access to capital on short notice. Predatory lenders provide this…service. Consumer credit counselors can do the same, with far less short and long term pain.
When this ordinance passes—I have faith in our municipal leaders—predatory lenders will still make a profit. Well and good. Waco citizens will still have access to quick capital. Well and good. But Wacoans will have options and far more favorable terms.
For some background on this industry, its origin, business model, connections to big banks as well as oft-cited talking points from predatory lending proponents, I refer you to Broke U.S.A. by Gary Rivlin. Be forewarned, it requires a strong stomach; the author provides in excruciating detail how this industry preys upon the poor, downtrodden and most vulnerable in society.
I have the privilege of serving as the Senior Pastor of Calvary Baptist Church located at 18th and Bosque in the Sanger-Heights neighborhood of Waco. Calvary is located only a few blocks from Waco Drive; and thus, only a few blocks from multiple predatory lending establishments. I come at this issue not from political or social concerns. I care about this matter because of my faith in and following of Jesus Christ. Karl Barth, the pre-eminent theologian of the 20th century, noted that the confession “Thy kingdom come” is the most radically political statement one can make. God’s kingdom will not have a place for payday or auto-title lending. It will have ample supply of mercy, grace and justice.
For some background on the divine abhorrence of usury, I refer you the Bible. With only slight exaggeration, you would be hard pressed to find a page within the sacred writ that does not speak of God’s protection over the poor, downtrodden and those most vulnerable in society, and corresponding judgment upon predators and those who do not seek their safety and justice alike. That protection is not reserved for some far off time or far off place. Followers of God are called to work for the redemption of those in need, and their predators, here and now. Passage of this ordinance is one means of declaring “Thy kingdom come!”
Jim Coston is Pastor to Calvary Baptist in Waco, husband to Julie, dad to Justin, Chloe and Samantha and ranch hand to his family’s chickens, goats and dogs.
The Act Locally Waco blog publishes posts with a connection to these aspirations for Waco. If you are interested in writing for the Act Locally Waco Blog, please email [email protected] for more information.