Mississippi legislators didn't buy the so-called Biblical argument against payday loans. (Photo Credit: CC BY-SA/Ken Lund/Flickr)

Opponents of no credit check payday loans frequently support their arguments by referencing religious documents, such as the Bible, that claim payday lenders practice usury – charging an “exorbitant or unlawful rate of interest.” Charlie Mitchell of the Mississippi Clarion-Ledger makes this mistake in his recent criticism of Mississippi House Bill 455, which will enable payday lenders to continue to do business in the state. Upon closer inspection, it becomes clear that interest-bearing no credit check payday loans are neither usurious nor “sinful” in the Biblical sense.

No credit check payday loans and interest rates

The crux of Mitchell’s argument is that payday lenders charge too much interest on an annual basis, and short term loans are sinful devices that impoverish the working man. This ignores the fact that payday loans are not intended to be paid off over the course of 12 months; most have terms ranging from two weeks to 90 days. If the lender charges the borrower $15 to $25 per $100 loaned, the borrower is paying a 15 to 25 percent fee, not a 500 percent APR as Mitchell claims.

The Bible does not condemn payday loans

Because Mitchell’s facts regarding online payday loan terms are lacking, he is left with the Biblical avenue of attack. While it is true that there are numerous Bible scriptures that forbid usury (Exodus 22:25, Ezekiel 22:16-31, Ezekiel 18:8-17), the prime Biblical parable that critics as noteworthy as MSNBC’s Rachel Maddow have used to attack payday loans is found at Nehemiah 5:9-10. This frequently misinterpreted scripture refers to an excessive and unreasonable temple tax levied against the Jews by the Romans that caused the Jews to become financially destitute. Critics of online payday loans, like Maddow, mistakenly replace “tax” with “interest-bearing loans,” and claim that the interest is what brought dark days to the Israelites.

Not only were Hebrews not being oppressed by interest-bearing loans, their God permitted them to lend and charge interest. Consider Deuteronomy 23:30:

“Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest.”

So long as the borrower was a Gentile, everything was fine with God.

Are no credit check payday loans usurious?

Usury is often defined an “exorbitant” or “unlawful” rate of interest. No credit check payday loans are regulated by federal and state laws that clearly establish terms and fees that can be charged, so the product is not unlawful.

As to whether online payday loan fees are exorbitant, the answer is relative. If potential borrowers think an interest rate is unreasonable, they have the option to abstain. If an online payday loan originator cannot lend at a rate that is reasonable for business, loans will not be issued. A mutually agreeable interest rate will always be found in the U.S. free market economy. No credit check payday loans are neither exorbitant nor unlawful, thus not usurious.

Sources

Andrew Breitbart Presents Big Journalism

Crooks and Liars

Mississippi Clarion-Ledger

How no credit check payday loans work

The BSE TASIS Shariah 50 will open Islamic investment in India. (Photo Credit: CC BY-ND/fredu89/Islam in a Finnish Muslim's Eyes)

In accordance with Shariah law, Muslims are not permitted to invest in companies that derive significant benefit from interest, as Muslims consider this to be usury. In order to facilitate business-minded Muslims who wish to diversify their investment portfolios, the Bombay Stock Exchange (BSE), the Mumbai-based Taqwaa Advisory and Shariah Investment Solutions have launched an Islamic stock index of India’s top 50 companies that comply with Shariah law. Also known as the BSE TASIS Shariah 50, this index provides Muslims with the opportunity to invest in some of the most liquid stocks available on the BSE 500.

Islamic stock index reflects interest in fast-growing market

According to the Wall Street Journal, the Islamic stock index was up 0.5 percent this morning, which was an even more impressive performance than the BSE as a whole. Trading in Shariah-compliant products like mutual funds that do not generally produce excessive interest or bear excessive risk is popular in the Islamic world. Shariah finance – in which the BSE TASIS Shariah 50 is expected to play a major role – is a trillion-dollar industry worldwide, reports the WSJ. As one of the largest Muslim markets on earth resides in India, where 15 percent of the population (175 million) is Muslim, the demand for the Islamic stock index is not surprising.

An unbalanced credit-to-deposit ratio

A recent study by the Reserve Bank of India found that while the national credit-to-deposit ratio hovers around 74 percent, it is only 47 percent for Indian Muslims. What this means, according to the WSJ, is that compared to what Indian Muslims save, they borrow a great deal of money that could feasibly be used to open a business or buy assets at a lower rate than the rest of the Indian population. Experts predict that the BSE TASIS Shariah 50 may help smooth out that ratio for Indian Muslims, but it also remains likely that the Islamic stock index will make India a destination for foreign Islamic finance.

Sources

Debt Steps article on credit-to-debt ratio

Wall Street Journal

Some call it ‘financial jihad’

This could be considered exorbitant or unreasonable, much like usury. Payday lending, however, meets neither of those criteria. (Photo: ThinkStock)

Payday lending has been criticized on numerous grounds by a variety of sources, but inevitably these criticisms tend to point back toward a single source: usury. Lending and the charging of interest – even the concept of “exorbitant or unlawful rate of interest,” as a Google search defines usury – very likely predate the creation of the Judeo-Christian Bible and similar monotheistic world religious books. And it is within such books that the staunchest foes of payday lending find their reason for equating payday loans with usury. But as careful examination of both the secular (dictionary) definition of usury and the religious interpretation will show, connecting payday lending and usury is both unreasonable and exorbitant in and of itself.

Payday lending and usury – know your history

While some Judeo-Christian scriptures (such as Exodus 22:25, Ezekiel 22:16-31, Ezekiel 18:8-17) speak toward a ban on usury and charging interest, there are numerous other scriptures that make the distinction that “Hebrews were permitted to make interest-bearing payday loans to non-Jews, but not to fellow Jews.” A commonly misinterpreted Judeo-Christian scripture as it relates to interest and usury is Nehemiah  5:9-10. What is being discussed there is undue taxation, rather than interest-bearing loans, and so it refers to an entirely different animal.

Historically, the Renaissance and Protestant Reformation brought about a sensible re-awakening when it came to the business of charging interest. Religious leaders such as John Calvin, Martin Luther and numerous other luminaries proposed that the only thing that needed regulation was “excessive interest.” By 1461, Pope Paul II gave his blessing to the business of pawnshops. Thus, interest-bearing loans (from which payday lending is a direct descendant) gained popular approval.

The words ‘excessive’ and ‘unlawful’ keep popping up

So perhaps a secular examination is necessary to show that payday lending and usury are two very different things. The Breitbart blog Big Journalism suggests that because various states in the U.S.  set a maximum chargeable fee for payday loans quite specifically, the law is established. So long as payday lenders operate within said laws, they do not fulfill the claim that payday lending is “unlawful” in the usurious sense. In terms of payday lending being “excessive” or “exorbitant,” another Google search returns the following definition for “exorbitant”:

“Greatly exceeding bounds of reason or moderation”

What does “reasonable” mean when it comes to payday lending and usury, asks Big Journalism. Essentially, it’s all relative. If a potential borrower finds the rate charged on payday loans to be unreasonable, then they will more than likely avoid taking out such loans. If a potential borrower wants a loan at what they deem to be a reasonable rate, but a lender determines that rate to be unreasonable for their business, then the lender will not generate the payday loan. An interest rate that is mutually reasonable cuts to the very essence of how a free market economy works. A great number of payday lending transactions occur, so that means borrower and lender have been in agreement regarding reasonable interest rates. Thus, as Big Journalism argues, payday lending is neither unlawful nor unreasonable – and thus it is not an instance of usury.

Returning to Nehemiah 5:9-10

Scripture does not condemn payday lending – where rates are both lawful and reasonable as per the above example. It forbids usury, as do numerous secular laws worldwide. They are distinctly separate concepts. The danger in payday lending is when a borrower uses such loans in an irresponsible manner (for impulse purchases, or taking more than they know they’ll be able to repay by the maturity date). Responsibility falls upon the borrowers to make decisions that best suit their financial situations. The vast majority of payday lenders have income requirements in place to guard both the business and the consumer against a ruinous financial situation. As various studies show that 94 percent of payday loans are repaid on time, the safeguards in place appear to be both lawful and reasonable. It doesn’t take someone with the qualifications of Big Journalism to reason that such is the case.

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