Illinois People’s Action

Illinois People’s Action

A $325 loan should not lead to a family’s economic ruin—but for millions of people in the United States, a small short-term loan is the hook into a cycle of debt and despair.

More than 12 million people borrow money from so-called payday lenders who market their loans as a short-term fix for unexpected expenses. In reality, the loan has a very long life. It is typically due in two weeks and the interest is legally allowed to reach a jaw-dropping annual percentage rate (APR) of 400 percent. So the typical payday borrower eventually pays back $793 for a $325 loan. Frequently, the initial loan is rolled over into another loan to pay off the first one. Sadly, more than 80% of the people who visit the 20,000 payday loans shops in poor neighborhoods across the United States are repeat customers.

Monies spent on interest cannot be used for other needs, like food, shelter, clothing and utilities. The endless cycle of borrowing pulls families and communities into its vortex.

With grants from CCHD, interfaith community groups like Illinois People’s Action (IPA) are working to pass state and local legislation to cap interest rates on payday loans. Federal laws prohibit lenders from charging military personnel more than 36% annual interest, but no such rules apply to civilian borrowers. IPA points to the Biblical injunctions against predatory lending and helps parishioners seek justice for low-income people with few options. IPA is meeting with banks and credit unions to identify lenders willing to offer a conscionable interest rate to low-income borrowers.