By Chris Hughes
In February 2017, First Baptist Church of Frankfort, Ky., made one of the most unique $5,000 investments in its 200-year history. The money raised was not for additional personnel, new property or even renovation of existing property. Rather, this $5,000 investment became seed money for an entirely new way to help their community’s most vulnerable population—a payday loan ministry to assist those caught in the debt trap of predatory lending.
The purpose of the seed money is simple but revolutionary. The payday loan ministry provides mediation to secure microloans between $500 and $1,000 from a local credit union to help individuals get out from under the thumb of their lenders. By offering loans at a much lower interest rate than the typical payday lender (3% APR as opposed to 300-500% APR), the ministry makes monthly payments more affordable for borrowers, allowing them to pay down the principle in a much shorter timeframe. When the borrower finishes paying back the loan, the money goes back into the fund at the credit union and is used to provide more microloans for others.
“One of the things I told our congregation when I was trying to raise the $5,000 was ‘This could be the most unique gift you ever give to the church because it will be recycled and used over and over again,’” said Keith Felton, minister of missions at First Baptist Church, whose passion for addressing predatory lending brought the Payday Loan Ministry into being.
Felton traces that passion back to his time as pastor at First Baptist Church of Hamilton, Texas, where he served from 2004 to 2006. CBF leaders Suzii Paynter and Stephen Reeves, who were then serving at the Texas Baptist Christian Life Commission, became his earliest teachers on predatory lending. But Felton learned more intimately how pervasive and pernicious payday lending is when he began serving as minister of missions at First Baptist in Frankfort a decade later and met face-to-face with people affected by predatory loans.
Felton was charged with providing aid when someone came to the church asking for direct assistance. “People came to our door and I would try to unravel the root of the problem,” Felton said, recalling times when people came asking for help to pay utility bills or for assistance with rent payment in times of financial distress. “Seven times out of 10, it would come back to ‘if I could just get rid of this loan’ and it was always a payday loan.”
This is not an uncommon story for those caught in debt traps by the payday loan industry. In fact, ensnaring low-income people in an endless debt trap is typically the goal of payday lenders. “The payday industry preys upon the poor,” Felton explained. “They utilize deceptive and aggressive tactics and they locate their stores in areas of great need.”
Felton has seen firsthand how easy and how devastating it is for people to get trapped in debt by payday lenders. “I met a man in Frankfort who had taken out a $470 payday loan over 10 years ago, and was paying $75-$80 a month in interest without ever touching the principle,” Felton said. By a conservative estimate, he may have paid more than $19,000 in interest for the $470 loan because of the excessive rates charged by lenders.
Payday lending is a nationwide issue, drawing the attention of faith-based and humanitarian groups alike. In 2016, Pew Charitable Trusts released an extensive five-year study on payday lending in the U.S. and found that the aggressive tactics of these creditors create an endless cycle of debt for borrowers. Twelve million Americans take out payday loans each year, paying $12-billion a year in loan fees. The average payday loan requires a lump sum repayment of $430, consuming 36 percent of the average borrower’s paycheck.
Payday lenders have direct access to the borrower’s checking account and take out payments before the borrower has a chance to pay any other expenses. Thus, most borrowers must renew or re-borrow to cover expenses. More than 75 percent of payday loans belong to those who take out 11 or more loans a year. This is what advocates fighting against predatory lending call the “debt trap” which they are working to overcome through local, state and federal protections for consumers.
The leadership of Paynter and Reeves brought payday lending to the attention of Cooperative Baptists, leading to advocacy in many forms including meetings with legislators, protests and coalition-building with other faith groups. CBF took advocacy a step further in September, seeking “intervenor” status in ongoing litigation between payday lenders and the Consumer Financial Protection Bureau. Through intervenor status, they sought to defend new rules that CBF had successfully advocated for to strengthen borrower protections against predatory lending tactics.
Their leadership trickled down to CBF state and regional organizations, and even to local churches such as First Baptist Church of Frankfort, that now include advocacy as part of their mission. The work is paying dividends in its impact on those caught in payday lending.
“We have helped 23 people,” Felton said. “We’ve had a handful of people pay off their loan. We’ve had no one default and no one has been late on a payment.”
Back on the ground in Frankfort, borrowers can come to church seeking assistance to pay off their loans. The Payday Loan Ministry Committee has established an application process wherein the borrowers detail their loan, how much is owed, the interest rate and show proof of a reliable source of income. The committee explains the loan process including the interest rate and payment schedule and meets to decide on the viability of approving the loan for the candidate. The committee also provides financial mentoring throughout the process.
If the application is approved, the candidate then takes the application to Commonwealth Credit Union, a local credit union with whom the church partners in the ministry. The credit union disperses the loan and handles repayment. The loans are capped at $1,000 and are paid off over 12 months. Most of the payment goes towards the principle because the credit union loan has a significantly lower interest rate.
Vicki Mitchell, a member of the Payday Loan Ministry Committee and a 26-year employee of Commonwealth Credit Union, formed the partnership with her employer. When Felton asked if she could make a connection, she took it to the senior leadership and the board, all of whom approved.
“Commonwealth Credit Union has a very member-friendly perspective,” Mitchell said. “For them, it was no risk,” Felton observed. “They are also genuinely good people and they want to be a part of this.”
For Mitchell, the convergence of ministry with her career was serendipitous. “Our church has a really good medical clinic and a clothes closet. In your mind, that’s what you think about when you think about helping people. But people are trapped in these loans and they need to get out.”
Social justice work like this is not peripheral to Christian faith, according to Felton. “Yes, we’re going to talk about Jesus; but we’re also going to be talking about doing the things Jesus did. Jesus associated himself with the people who found themselves in situations like those who are in the payday lending trap,” he said.
“That’s what we’re trying to do.”