Predatory Lending

Read Time / 2 Minutes

Theme / Values-Based Investing

The store sits on the corner of a busy intersection in town.  Thousands of people drive past the store daily, eyeing the prominently displayed signs promising cash advances.  Need cash?  Bring in your car title and you can walk out with money in your pocket in minutes.

Title loan stores normally have high profit margins, which can put a lot of money in the pockets of those who have invested in these stores.  If investing is only about making money, then investing in title loan stores is worth considering.  We should, however, also consider the moral aspects of investing.

According to a Federal Trade Commission website, here is how a typical car title loan works:

·       You want to borrow $1,000 for 30 days.

·       The finance fee is 25%. That means that you pay $250 to borrow $1,000.

·       You give the lender the title to your car, and the lender gives you $1,000 in cash.

·       When it’s time to repay the lender in 30 days, you must pay $1,250, plus any other fees the lender charges.

 If you do the math, paying 25% interest for a one-month loan equates to paying 300% for one year.  Charging excessive interest rates like this is referred to as predatory lending.

The Bible speaks strongly against predatory lending.  “When you make a loan of any kind to your neighbor, do not go into their house to get what is offered to you as a pledge. Stay outside and let the neighbor to whom you are making the loan bring the pledge out to you.  If the neighbor is poor, do not go to sleep with their pledge in your possession.  Return their cloak by sunset so that your neighbor may sleep in it. Then they will thank you, and it will be regarded as a righteous act in the sight of the Lord your God” (Deuteronomy 24:10-13).  God is not against charging interest when loaning money (requiring cloak as pledge), but He does not want it to be excessive (returning cloak by sunset).

Each of us should check our investment portfolio to see if we are profiting from predatory lending.  We may be invested in mutual funds that own stock in predatory lending companies.  If we don’t know, we should reach out to a financial professional to find out.  If we learn that we are, then we should divest.  And, if we are tempted to stop and get easy cash when we drive by a title loan store, keep driving!

Doug Hanson, MBA

Wealth Advisor

208.697.3699

doug@christianwm.com