Friday, February 25, 2011

An Experience with Payday Loans at Northeast Baptist Church in San Antonio

(On February 22, Chad Chaddick - pastor of Northeast Baptist Church, San Antonio - testified before the Texas Senate Committee on Business & Commerce in support of Senate Bill 253, which would close the payday lending loophole. The experience related here was part of the prepared remarks he presented to the committee.)

About a year ago, a couple joined our church. With six kids, a dependent mother-in-law, and one income, they were understandably financially fragile. The church gave them some financial assistance not long after they joined.

Six months later, they requested more financial assistance from the church. At present, the policies of our church provide that we do not require much from the individual church member-with-a-need other than to answer a few questions regarding the need and how it came to exist. If requests are made a second time, however, we require that those with the need meet with another member of our church who can assist them in developing a household budget and who can provide a measure of accountability with regard to living within that budget. The needy family in question willingly met with our Vice Chairman of Deacons and his wife.

In the course of developing the household budget, our deacon discovered that the family would be able to live within their means except for one item of debt that was dragging them down . . . . a $700 payday loan they had taken out roughly four months earlier to help with a rent payment on their home. The terms of the loan: $200 every two weeks was automatically deducted from the husband's paycheck. This $200 did not reduce the original amount of the loan. It merely allowed for the $700 principal to roll-over until the next pay-period. In the course of the four months the family had maintained this loan, they had rolled the principal over 9 times – at a cost of $1,800. (Had they continued to pay on the loan for a year, they would have paid $5,200, for an APR of over 740%!) Now, as they approached the church again for help, they needed help to pay their rent or face eviction.

The financial assistance that the church is able to provide for any family is limited. To help this particular family meet their financial obligations for the month and get them out from under the loan that would have kept them perpetually struggling (and us or others perpetually trying to help), we needed nearly $1,500. The loan accounted for half of that amount when the principal and associated fees were factored together. This certainly exceeded the usual amount the church was prepared to pay, but through the generosity of several church members, and even one non-church member, the money was raised.

It was then that we hit an unexpected speed bump – it took us three days to 1) determine exactly where the loan should be paid, and 2) discover a means acceptable to the company for paying off the loan (our offers of a check and an initial credit card were rejected). The system was certainly not set up to make it easy to pay off the loan. By the time we had located the company, talked with a representative who could authorize this pay-off, and agreed how the loan was to be paid, we had accrued nearly $100 worth of additional fees.

I am pleased to say that the family – being out from under the payday loan, and receiving some basic education on how to handle money and some accountability on their budget – has successfully lived within its means for the past three months.

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