“How then do we solve the problem of rollover fee that take advantage of the poor when they are in dire straits? As I’ve argued before, I believe a helpful first step is to get churches and other faith-based organizations involved in providing alternatives to commercial lending agencies.”

About twenty years ago I made some terrible choices and found myself in a serious financial bind. The amount I needed wasn’t much — about $200 — but without it I wouldn’t have been able to pay my rent. I took out a payday loan that cost me $30 every two weeks. It took about eight weeks to get clear of the loan, resulting in a cost of $120 to borrow $200 for two months.

Was I fooling myself thinking the loan could be paid in two week? Not at all. In fact, I knew quite well that there was likely no way possible for me to pay it off in that timeframe. I knew precisely how much money I was going to be able to earn and how much my expenses would be during that two-week period. I had, roughly speaking, about $40 a week that I could apply toward the loan.

But $40 was not sufficient to cover the balloon payment of $200 that was due at the end of two weeks. So I had to roll over the loan, applying $15 a week to the new fees and saving $25 a week to be paid toward the principal. That is why it took me eight weeks to pay off the original loan: $25 a week for principal + $15 a week for fees = $40 x 8 weeks = $320 ($200 for principal + $120 for fees.

If you’re middle class and think of it in terms of interest rate, that repayment cost sounds appalling usurious. And it is. But as the poor will tell you, man does not live on APR alone. Having to pay an extra $120 was cheaper than having to find a new place to live. Yes, it was a bad deal. But it was better than all my other choices. I didn’t agree to the loan because I was bad at a math; I did it because I was desperate. And the payday lending company was more than willing to take advantage of my desperation.

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