You would think by now that banks and other financial institutions would have been chastened some by the scrutiny and criticism that they received during the near meltdown of the financial system in September 2008 and its aftermath. Judging by the aggressive path that some have adopted in the payday lending arena, I am sorry to report that some banks have quickly beaten a path back to their old behaviors. Constrained from many of the usual profit making services that were part of their pre-crisis business models, many have been looking at additional fees for such things as ATM withdrawals or late payments and other increased charges to make up the lost income.
In a letter signed by more than 250 organizations -- many of them from faith communities and active members of the Interfaith Center on Corporate Responsibility (ICCR) -- that was addressed to the Consumer Finance Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve and the Office of the Comptroller of the Currency asking them to stop the practice of making unaffordable high-cost loans to vulnerable customers. The letter states that, "Wells Fargo, US Bank, Fifth Third, Regions, and Guaranty Bank's deposit 'advance' loans are structured just like loans from payday loan stores -- carrying a high-cost combined with a short-term balloon repayment."
These predatory loans that can carry an annual percentage rate (APR) in excess of 365 percent, based on the typical loan term of 10 days, can, according to the letter, "trap borrowers in a cycle of expensive long-term debt, causing serious financial harm to borrowers, including increased likelihood of bankruptcy, paying credit card debts and other bills late, delayed medical care, and loss of basic banking privileges because of repeated overdrafts."
In their well-documented book, "A History of Interest Rates," Sidney Homer & Richard Sylla trace the evolution of credit and the influence of the religious communities almost every step of the way in the process. Primitive credit may only have consisted of the loan of a seed until harvest or of an animal or of a tool for a while and could be classified as gifts, loans or loans at interest depending on the arrangement accepted. The evolution of certain criteria or mediums for repayment was also in evidence until money became the common denominator for all repayment of loans. Cattle, grain, dates, olives, figs were among the original form of money and were followed by inanimate commodities such as copper, gold, silver and bronze.
Different sets of rules were applicable according to the type of transaction or commercial activity that was involved. Much of the early data suggest that the legal codes that emerged and were established in this area were primarily focused on prohibiting the use of credit or its abuse. The Israelites did not permit lending at interest, and the Iranians felt it dishonored a man. The Romans permitted it but limited the rate of interest and the Greeks seemed to encourage credit without limit. The earliest historical accounts of practices and customs present us with a picture of the challenges that were faced by those who sought to define and regulate the complex set of relationships that existed between debtors and creditors.
Over time, when various institutions were organized to serve the credit and saving needs of peoples and communities, the rules for this practice evolved. Some of these practices were adopted by the financial service houses that arranged credit and financing for activities like shipping, and exploration as well as the transport of people and commodities. The prevailing tools that were used to measure the amounts of risk that were being assumed in any of these transactions and others that were being created would usually be interrogated by the prevailing religious standards of the day.
The Catholic Church entered this debate in a powerful fashion when in 325, the Council of Nicea passed a canon prohibiting usury by clerics by citing Psalm 15 while other leading churchmen of the day, like St. Jerome, argued that the prohibition of usury in Deuteronomy among brothers had been universalized by the prophets and the New Testament. The teaching on usury was enforced intermittently by Church and State until the 11th century when the revival of European learning and trade would be the occasion for a more detailed examination of the practice by scholars and a more nuanced articulation of what was permissible by the Church.
In recognizing that the rules and teaching on interest rates that exist today emerged from the intersection of the teachings of the faith traditions with the commercial and financial practices that emerged over the centuries, the emergence of practices like "payday" and "predatory" lending deserve the scrutiny of religious leaders and people of faith. The advocates calling for the reform of these practices could also benefit from their active solidarity and advocacy.