Discussion Thread: Payday Loans, 1 reply

Payday Loans

Andrew M. Hendrix

School of Business, Liberty University

BUSI-620

Dr. Wenyuan Teng

December 2, 2021

 

Author Note

Andrew M. Hendrix

I have no known conflict of interest to disclose

Correspondence concerning this article should be addressed to Andrew M. Hendrix

Email:

 

Payday Loans

            Payday loans have been utilized by
numerous individuals over the past few decades to manage the gap between
due dates on bills and the arrival of their paycheck. These microloans
and microcredit issuances have increased alongside the wealth gap and
are known for charging extraordinarily high-interest rates. According to
Melzer & Morgan (2015), “an estimated 19 million households paid
between $8 billion and $9 billion of interest charges on payday loans in
2007” (p. 26). These loans are so volatile that fifteen states have
banned payday loans or have enacted a maximum amount of interest or loan
amount (Melzer & Morgan, 2015). The majority of these loans are
taken on by people living below the poverty line with poor credit. Their
credit then decreases further due to the exorbitant interest charges
and possible overdraft penalties associated with these loans and bank
overdrafts. The two alternatives for many of these families are
overdraft charges or payday loans to keep food on the table (Melzer
& Morgan, 2015).

            Morally, these high-interest loans are against many of
the teachings in major religions. According to Leviticus 25:35-37, “Do
not take interest or any profit from them, but fear your God, so that
they may continue to live among you. You must not lend them money at interest or sell them food at a profit (New International Version Bible,
1978/2011). “Them” in this passages refers to the poor and demonstrates
that people should not take advantage of others’ misfortunes for their
gain. While modern business practices may differ from moral practices in
regards to profits, businesses possess a corporate social
responsibility and have a large impact on their community. According to
Liang & Renneboog (2017), companies adopt socially responsible
policies to enhance brand equity and profitability through awareness and
goodwill. Companies can help decrease the cost of living through more
affordable loan solutions. A lower interest rate allows companies to
compete with each other and can make the loans more likely to be paid
off if a lower rate is utilized. Regardless of the rate, companies
should seek to help their communities rather than facilitate profits off
of those in poverty.

 

References

Liang, H., & Renneboog, L. (2017). On the foundations of Corporate Social Responsibility. The Journal of Finance, 72(2), 853–909. https://doi.org/10.1111/jofi.12487 (Links to an external site.)

Melzer, B. T., & Morgan, D. P. (2015). Competition in a consumer loan market: Payday loans and overdraft credit. Journal of Financial Intermediation, 24(1), 25–44. https://doi.org/10.1016/j.jfi.2014.07.001

New International Version Bible. (2011). Zondervan. (Original work published 1978)

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