The word strikes the ear unpleasantly. It sounds like a term for an abdominal condition, an exotic fungus, or a fetid and forgotten region of the upper reaches of the Amazon.
Its repulsiveness is fitting, given its hard application on vulnerable people across the globe. Few places in the United States feel it more than Alabama, where state government has made it easier for lenders to prey on the desperate.
The Oxford English Dictionary defines usury as "the practice of charging, taking, or contracting to receive excessive or illegal rates of interest for money on loan."
Its essential wrongness is noted in history and ingrained in our Judeo-Christian values. See it referred to in unflattering terms in the books of Isaiah, Exodus, Ezekiel, Psalms and others.
With this kind of moral clarity, it is perplexing that a biblically based society such as Alabama's would put up with such widespread sin in our midst.
Yet plenty of evidence is before us, as obvious as the dozens of payday lenders operating in Calhoun County. Pull off of Interstate 20, head north on Alabama 21, and some six miles up the road, you would have passed more than two dozen store fronts with names such as Advance America, Check Into Cash, Approved Cash Advance, Cash Express, Checkmate Cash Advance. So many, in fact, that since late 2007 the city of Anniston has refused to issue new business licenses for such lenders.
In Calhoun County, payday lenders outnumber traditional banks, 31 to 30.
Payday lenders offer small, short-term loans — basically, a cash advance against an upcoming paycheck — but at astronomical interest rates. They're in a class with refund anticipation loans (a cash advance against an expected tax refund) and title pawns (secured using a vehicle title). According to their advocates, these businesses fill a gap in the needs of those in our society who fall short from time to time.
Opponents have another name for them: predatory lenders. Their prey tends to be the working poor, the military, seniors, those on fixed incomes, without access to conventional credit.
Think credit card interest rates of 36 percent are high? Try getting a loan from a payday lender, which — with the full approval of the Alabama Legislature — is allowed to charge the equivalent of 456 percent interest. Because the loans are generally small and the risks are higher, these companies maintain that the higher interest rates and fees are justified.
The prophet Isaiah would be appalled.
Consider the math compiled by the North Carolina-based Center for Responsible Lending: A typical borrower pays back $793 in fees and interest to a payday lender, all for the privilege of receiving $325 in cash.
The loans may be small, but the business is very big.
In 2006, approximately 19 million Americans used payday lenders, borrowing almost $48 billion from some 24,000 outlets nationwide. Those lenders post revenue of about $6 billion a year, according to The Wall Street Journal.
Alabama is home to 1,164 payday lending stores, and, according to a report by the Center for Responsible Lending, these entities realized revenue in excess of $1.4 billion in 2005. During that same period, the report says, borrowers in Alabama paid some $250 million in fees to these stores.
The payday loan business is not so profitable elsewhere. Many states cap interest at a much lower rate and limit fees. North Carolina, for example, capped interest rates at 36 percent, becoming one of 12 states to essentially outlaw payday lending's excessive fees and interest. Georgia similarly restricts it. In states where predatory lending is strongly regulated, the Center for Responsible Lending found that residents saved an estimated $1.4 billion in fees every year.
Other states are moving aggressively against what they see as abusive practices. Earlier this year, the Arkansas attorney general announced he would start shutting down payday lenders that charged interest rates above the 17 percent allowed by Arkansas law. The New Hampshire Legislature is expected to outlaw the practice soon.
Here in Alabama, however, the business forecast for payday lenders appears strong. The recently completed legislative session was free of laws to reform payday lending. Meanwhile, as the economy continues to drag, the number of people living from paycheck to paycheck is growing.
Over the next week, The Star's editorial page will explore this issue in depth. This space will look at the legislation governing the industry in the state and see how it compares to laws in other states.
We will examine what the proliferation of these outlets says about our local economy, and what it does to it.
Readers will be introduced to everyday people who have depended on the services of payday lenders and are now paying the consequences. Later in the week, you will hear what the industry has to say for itself, and on Sunday we will offer some solutions.
The free market, properly managed, has been very good for society. Collectively, we are good at making money. But collectively we have also, sometimes belatedly, guarded against abusive business practices. We have looked after those who sometimes need a hand up, and got after those who try to kick them when they're down.
It's time for Alabama to stop this abuse of its own people.