Saturday, April 20, 2013

CHAD CHADDICK: A Moral Argument for Strict Regulation of the Payday and Auto Title Lending Industries

(EDITOR'S NOTE: On Monday, Chad Chaddick, pastor of Northeast Baptist Church, San Antonio, testified before a Texas Senate committee on the payday and auto title lending bill that is being considered by the Texas legislature. We publish his prepared testimony here with his permission.)

Two years ago, I testified before the Senate Committee on Business and Finance regarding what I had witnessed first hand involving the devastation visited upon a family by a payday loan. It was a story that involved a $700 loan rolled over 9 times at $200 a roll-over with interest and fees amounting to a 740% APR. Ultimately, the loan was paid off by a church. I told the story because I found those numbers to be shockingly unjust, and I hoped that others would as well.

Since I told that story, I have heard many stories with similar numbers, and some stories with even worse numbers. I have witnessed and heard about extended families that have been drawn into cycles of debt from which they could not escape. I have seen my church and others forced to give charitable gifts to those who have been trapped by such loans or watch these families slide into homelessness, or lose their children to protective services because they could not afford to keep their utilities connected. I have considered that the taxpayers of this state are forced to fund the payday industry as those who get trapped in cycles of debt become ever more dependent on state and government services. In the process of hearing these stories and witnessing these scenarios, I must admit that I am no longer shocked by the numbers. Interest rates of 500%, 700%, 900% are so common that they cease to move any real emotion in me. I suspect that the shock value of these numbers is ultimately lost on all of us who look often enough at the situation.

So today I want to take another approach - an approach that does not appeal to the shock value of these brutal interest rates and fees. Instead, I want to make a moral argument. I do so, not only because I see that our natural moral inclinations are becoming desensitized by the sheer volume of stories about “700% interest loans,” but also because I hear a decided shift in this discussion away from thoughts about moral responsibility and towards a supposedly amoral standard for our decision-making. More and more I hear appeals to “The Market.” I have lost count of how many times recently I have heard the phrase “The Market will bear” in discussions about these kinds of loan products. I would like to point out that The Market is a poor standard for helping us measure what is good for ourselves, for our fellow citizens, or for our state. The Market has and will continue to bear a great many things that are not good. The Market bears all manner of human rights abuses around the world. Not to distract us from the issue at hand, but to emphasize this point, The Market will bear the sale and transport of underage girls for sexual slavery. One could well use the argument that if there were not a desire for these products, the sex-trade industry would not exist. But it does, and the desires that drive it do not justify its existence. Likewise, The Market will not only bear but will encourage illegal immigration in our state. Clearly, there is a demand for cheap labor - so much so that despite the regulations we have in place, men and women are seeking to illegally cross our borders and our citizens are hiring them. The fact that there is a demand for these products does not justify deregulation.

We could spend a long time elucidating the number of things that The Market will bear Some of those things we have called good, and we have encouraged these good things through a lack of regulation and through positive incentives. But some of those things that The Market will bear we have said it should not bear. These things we either sought to eliminate completely or we have sought to regulate. Either way, we have acted out of moral impulses for the good of our citizens and for our own protection. In every case, we have looked at the amoral Market and sought to influence it with our moral judgments. The Market is wholly without moral sensibility and it is up to us - and more directly, it is up to you - to invest The Market with moral guidance.

Clearly, The Market will bear 700% short-term loans. Clearly, The Market will bear the entrapment of families into cycles of debt from which they cannot escape. Clearly, The Market will bear the repossession of 35,000 vehicles through auto-title loans. The Market will bear it but should it? And should it bear it without regulations?

Consider the scenario we are all familiar with in which The Market bore a very specific type of predatory lending. I am speaking of the sub-prime housing loans and the mess they have made of our wider economy. A lot of money was made from these lending practices. A lot of people took advantage of those with poor credit even though they knew the borrowers could not afford the loans they were taking. Lenders, realtors, and peer pressure within The Market itself encouraged people to avail themselves of these overly available lines of credit. The Market bore these excesses - for a time. And now we are looking for protective regulations to insure that the issuing of credit does not unsustainably prop up individuals, families, or industries.

The Payday and Auto-Loan industry is not so different from sub-prime lending. The product they offer often unsustainably props up individuals and families. In fact, the products are more profitable the more unsustainable they are. It is better for the industry if the product is rolled over multiple times rather than being repaid in full. The result of this lending is increased debt and increased hardship on families. People lose houses when their finances are unsustainably propped up by quick loans they cannot afford. People lose cars, and then they lose their jobs when they can’t get to those jobs without their cars. And who pays for these failed loans? Who pays for the cycle of debt that is created through this easy, unregulated, artificial cash-flow? My church does, and other benevolent agencies do. The taxpayer does as the government assistance programs are burdened. Every day, we are bailing out those families that have become trapped by these unregulated predatory lending practices. The great irony, of course, is that these lenders exist as Credit Service Organizations - organizations that were intended to be a help to citizens in rebuilding their credit and rebuilding their lives.

That The Market will bear these excesses and predatory practices is a poor justification for crushing the citizens of Texas with debt. Other states have recognized the moral component in this, and they have passed regulations to protect their citizens. The payday industry in their states continues to do business showing that The Market will bear these regulations. Let me say that again: The Market will bear these regulations. As a citizen, as a taxpayer, and as a moral human being, I urge you to not simply consider what The Market will bear, for The Market knows nothing of right and wrong. I urge you to do what is right for the citizens of Texas and to guide an amoral Market away from abuse and toward the greater financial health of our citizens. In this case, siding with what the amoral Market will bear will place you squarely on the side of immoral financial oppression. Texans deserve better.

Respectfully submitted,
Chad R. Chaddick, D.Min
Northeast Baptist Church
San Antonio, Texas

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