“Enabling Opportunity”
Helping Needy New Yorkers Build Dignified Futures
via Affordable Credit Options
By Rabbi David Rosenn
Executive Director
Hebrew Free Loan Society
It seems clear that the Bible’s ban on charging interest is a question about whom we serve.
The Book of Proverbs teaches, “The borrower is a slave to the lender” (22:7) – and that’s no metaphor. At the time of the Bible, people who defaulted on loans were first forced to sell their possessions, and then their land. If they still could not pay off their debt, they were forced to sell themselves.
In an agrarian subsistence economy like the one that existed in the time of the Bible, there were very few true business loans. Most people borrowed money only when they needed it to survive, and the prohibitions on interest were put into place to prevent needy borrowers from winding up as debt slaves, serving human masters instead of God.
Thousands of years since these laws appeared, it is still possible for borrowers to feel themselves enslaved by creditors. And for that matter, it is still possible for creditors to feel that they have Godlike control over the destiny of people who owe. Pushing back against that situation is the root of the vehement protest that the Bible launches against interest. In other words, the Bible teaches that turning a needy person into a profit center is a sin.
Things are very different in 21st century America than they were in Bible times. For one thing, we see debt not as an emergency measure to stave off starvation but as a tool for managing basic finances and enabling opportunity. Nearly everyone who owns a home in America has a mortgage, and going to college is possible for most students thanks to federal student loans. No longer is borrowing a sign of destitution. Quite the opposite! The destitute have a hard time obtaining credit, while the wealthy now borrow at favorable rates.
The ability to borrow money is still a lifeline for poor people, but modern financial services are designed to generate profits, not to serve as lifelines. So poor people are often shut out of access to credit or priced out because the subprime credit options available to them are far too expensive.
Outside of New York, many poor borrowers have no alternatives to high-cost, short term payday loans, where annual interest rates can be as high as 350%. Borrowers often find themselves trapped in these loans, paying off the interest and rarely managing to pay down the principal. New York protects consumers from these debt traps through an interest cap on loans of 25% APR,. That is still quite a high interest charge, but apparently not profitable enough for payday lenders, whose business model will not work in New York.
So lower income borrowers are saved from predatory payday loans, but what choices does that leave them with when they need to borrow? Credit unions are a decent option. These financial institutions are chartered to serve lower income borrowers and often offer affordable credit and payday loan alternatives. There are more credit unions in New York than in most states, but they are still not nearly as visible or accessible as banks, with ATMS and online banking options.
But banks seem not very interested in lower-income customers, and rarely offer affordable credit products. Even bank accounts wind up costing poor people more than they can afford due to fees generated by monthly minimum requirements and overdraft penalties.
Some houses of worship offer interest-free loans, but these are usually small-scale operations. My own organization, the Hebrew Free Loan Society, joins these smaller loan funds in keeping faith with the Bible’s injunction to lend interest-free, but at $14 million in loans per year, we don’t begin to touch the need for affordable credit in New York City, which stands at billion of dollars.
If we are going to succeed in enabling lower-income people to meet their financial needs with safe and affordable credit, we’ll need a mix of public policy, non-predatory market and nonprofit solutions. And we’ll need the kind of society that demands such solutions, because they are crucial pathways to opportunity and the basic necessities for a decent and dignified life. Another verse from Proverbs teaches that “Whoever is generous to the poor lends to God” (19:17). Credit is not a bad thing. It all depends on who is being served.
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Rabbi Rosenn will discuss the Hebrew Free Loan Society’s efforts to enable opportunity for all New Yorkers at ICNY’s upcoming Marshall Meyer Retreat:
Faith-Based Lending and Economic Empowerment:
Helping Diverse New Yorkers Build American Dreams
Wednesday, December 6, 2017
12:00 – 5:30 pm at the Interchurch Center, 475 Riverside Drive
6:00 – 9:00 pm at the Jewish Theological Seminary, 3080 Broadway
Click here for detailed information and registration
Or contact Iman Boukadoum at 212.870.3515 or iman@interfaithcenter.org.
This Marshall Meyer Retreat is co-sponsored by: