Payday loans institutes are modern usury

  • January 26, 2007

money martTORONTO - Jose Martin is a labourer at a construction site in Toronto. The job does not pay much so his family — his disabled wife and three children — supplements his income with social welfare provisions. However, welfare does not cater for everything the Martins need.

Recently, the family van broke down — again — and that is not the kind of problem you approach Toronto Works with. But Martin needed the van to take his wife to her three-times weekly therapy and the children to and from school.

Martin, a refugee from Ecuador, had no one to turn to for help until he saw a television commercial that proclaimed that when relatives, friends and banks cannot be there for you, a certain payday loan institution will always be there.

Payday loans are now a big factor in Canada's financial circles, with almost 2,000 branches across Canada under names like Money Mart, Stop'n'Cash and Payday Loans. Typically, payday loan institutions in Canada invite anyone who is 18 years or older, has been on a steady income for at least three months and is prepared to pay back the loan — in full — on payday, to apply.

You can literally walk into a payday loan institution without an appointment, fill in a very basic form, surrender your identification particulars and walk out with anything from about $300 to $1,000, sometimes even more.

An estimated two million Canadians in the low-income bracket are believed to rely on payday loans to pay off debts. When a financial obligation cannot wait for the next payday, they rely on these institutions for instant financial aid. And many users, like Martin, who apply for payday loans hoping it will be a one-off thing end up going back because the high interest rates and the strict requirements of paying off on the next pay cheque leave them no choice other than to go back for more. Many end up failing to pay and having the institutions garnish their wages.

The payday loan sector is actually growing fast with its value now estimated at about $1 billion, and institutions are as busy as traditional banks. Lines are long as more people turn to them.

The terms, which Martin and others facing difficult financial situations overlook in times of need, include interest charges that range from about 50 per cent to even twice the amount borrowed. All the money has to be paid back on payday, which sometimes can be within a few days.

In Martin's case, he could satisfy all the very basic terms of the loan agreement and did not worry about the high interest rates. His worry was his devotion to Christian teachings that regard payday loans as usury, which is considered a sin.

Usury is the practice of lending money at an excessive rate, usually above the legislated rate. Canadian law stipulates that interest beyond 60 per cent is illegal, but that law is rarely enforced.

The Roman Catholic Church has traditionally deplored usury, but according to Kenneth Melchin, professor of theology at Saint Paul University in Ottawa, the church hierarchy in Canada has neglected to use its influence to stem the spread of a phenomenon theologians call "social sin" or "structural evil."

Melchin said usury is part of this phenomenon which relates to the consumerism pattern that targets the vulnerable.

"This is the way that marketing programs of many institutions encourage people to spend, spend, spend and to offer credit to help incur personal debt (on) consumer spending," said Melchin.

He added that although the church acknowledges that exploitation of vulnerable persons is wrong, it nevertheless has a view that charging interest on many forms of loans can be ethically acceptable.

In Luke 6:34 usury is condemned thus: "If you lend to those from whom you hope to receive, what credit is that to you?" In fact, in the 1250s, Pope Innocent IV outlawed usury which he described as "evil because the usurer seeks avariciously what has no finite limits."

"But we all prayed as a family so the Lord can forgive me for applying for the loan," said Martin, a devout Catholic from Scarborough, as he accepted the $300 he had applied for. "All of it is going to the mechanic who is not ready to repair my car unless I show him the money. I have defaulted many times before and now they do not fix my car unless I pay first."

John Dadosky, an assistant professor of theology at Toronto's Regis College, said the church opposes any type of social injustice that sets up a context for oppression.

"Usury... facilitates such a context as it can put increasing pressure on the poor and marginalized," said Dadosky.

He then went on to quote Shakespeare: "Neither a borrower or a lender be."

"It is a good spiritual practice not to spend money you don't have," he said. "In my case, this means I don't use credit cards any more, except in exceptional circumstances when I already have the money to pay it immediately."

Many Christians and Muslims interviewed around Toronto revealed that although they know usury is a sin, they would not condemn people like Martin for taking advantage of the exploitative system of payday loans. They acknowledged that Martin's is a dilemma faced by thousands of people who prefer to utilize such loans because of poverty. Most could not even condemn the institutions offering payday loans as sinners.

"Actually, I blame the country's financial regulations in general. Laws prevent some people from being able to borrow from traditional institutions, which by the way are also using the usury concept. The only exception is that their terms are more flexible and their interest's low," said Peter Marvin, a Catholic from North York.

(Madawo is a freelance writer in Toronto.)

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