We sometimes hear from people deeply committed to one or both that religion and the market should keep to their separate spheres. In my Catholic faith tradition, there’s a long history of religious people taking positions on what makes financial transactions useful and just, and intervening to make reality closer to the ideal.
For much of Christian history, the Catholic Church opposed charging any interest for loans, which was regarded as sinful “usury.” In late antiquity, St. Augustine described loans as one form of charity: he assumed that the lender would charge no interest, providing a service to the needy borrower at some cost to themselves. He realized that many of those who need loans in order to get by are poor people whose needs should be at the forefront of Christian concern. Out of this same realization, some Italian Franciscans began to open pawnshops, called montes pietatis, in the 15th century, running them as charitable organizations to help poor people access small loans. As it became clear that these local practices were helping people in need, official Church teaching changed. In 1515, Pope Leo X proclaimed that charging “moderate” amounts of interest so that loan organizations could be maintained was legitimate under church law. (Despite this acknowledgement that lending at interest could be done morally, deep-rooted stigma against Jewish moneylenders, who had historically responded to Christians’ need for loans, affects European and US culture even today.)
If you hear a Christian call out “usury” today, like theologian Alex Mikulich does here, likely they’re not decrying all charging of interest but suggesting that a certain type of loan is predatory, unjust and harmful to the borrower. Catholic groups use this tradition effectively as they fight some of the most exploitative practices of payday lenders in states like Illinois, Kentucky, and Minnesota.
A new film, Spent: Looking for Change continues the dialogue about the payday loan industry. Two things are clear from this powerful film. First, many current practices of the payday loan industry are indeed exploitative and harmful to families who already find themselves on the edge. One family in the film estimates that by the time they pay off a loan of $450, they will have paid more than $1700 in interest. Another borrower was not allowed to pay off her loan until she could pay in full—racking up more interest although she could have been making payments, and eventually losing the car that she needed for work. Second, while payday lenders and check-cashing services charge fees that could accurately be described as usurious, they fill an otherwise unmet need. As many as 70 million people in the U.S. are excluded from the traditional banking system, because of issues like bad credit, no credit (a potential result of the cautious choice to avoid credit card use), or lack of geographic access to traditional banks.
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The film is sponsored by American Express, which is announcing new financial products designed to help those underserved by the traditional financial system, like the people featured in Spent who turn to usurious lenders. This seems consistent with a trend noted in the New York Times earlier this year: in response to rising inequality within the U.S., companies are shifting their offerings to appeal to either very wealthy, or increasingly poor consumers. It’s encouraging, I suppose, that one result of this trend could be more affordable financial services for people who historically have needed them. But let’s not forget that high inequality comes with a host of other social ills.
Let’s also not assume that because the market is beginning to respond to this need, anti-poverty activists can just sit back and relax. The makers of Spent created a petition to legalize prize-linked savings accounts. Supporting Elizabeth Warren’s plan to allow Post Offices to offer affordable financial services seems like another promising response. Watching and sharing Spent is a great way to keep the conversation going.
And I’d encourage people of faith, and everyone concerned about poverty, not to stop there. Microcredit agencies like Grameen America and Kiva Zip help individuals and groups—maybe even you, or your congregation—make interest-free loans to small-business owners in the US and abroad. Run on donations, they boast impressive repayment rates and help people in need avoid the most predatory operators in the financial system.
Call them today’s Franciscan pawnshops.