Resolution on Predatory Lending Practices

Proposed by the URJ Biennial Resolutions Committee

Jewish teachings and tradition highlight the importance of ethical business practices. Maimonides taught that loans should be a vehicle to self-reliance and not lead to a cycle of debt.^[1] Leviticus 25:14 states that all business transactions should be done in good faith and with clear intentions: "If you sell something to your neighbor or buy something from your neighbor’s hand, you shall not wrong one another." 

Borrowing money can make it possible to secure a home or a car or to escape poverty. Ideally, everyone would have access to credit and loans, regardless of income, citizenship, or race. However, the reality is that not all borrowers can obtain loans from the prime market with competitive interest rates. As a result, too many borrowers become victims of “predatory lending.” Loans that are considered "predatory" carry unreasonably high interest rates, impose onerous terms and hidden fees on the borrower, and/or carry harsh penalties for failing to make timely payments and are often misrepresented to borrowers. Other abusive lending practices include loan flipping (requiring a borrower to refinance a loan and incur fees in order to generate income for the lender), lending without regard to the borrower’s ability to repay the loan, abusive prepayment penalties, and outright fraud. At the same time, lenders may have to legitimately increase interest rates when taking on riskier loans, and high interest rates are not inherently predatory.

While unethical lending practices can and do affect borrowers in both the prime and subprime markets, too frequently, unethical lenders take advantage of less credit-worthy borrowers. Among the most vulnerable victims are impoverished individuals, rural borrowers, people on fixed incomes, and women, minorities, seniors, and military service personnel. Student borrowers without adequate financial literacy are also vulnerable. A 2000 study by the U.S. Department of Housing and Urban Development found that predatory lending practices are three times as likely in low-income communities, and five times as likely in black communities as in white communities.^[2] Similarly, a 2011-2013 federal study assessed that minorities were charged higher interest on car loans than white borrowers.^[3] 

The 2010 Wall Street Reform and Consumer Protection Act established new U.S. requirements for lenders and created the federal Consumer Financial Protection Bureau (CFPB). The Bureau has rulemaking, investigative and enforcement authority over all banking organizations with assets of $10 billion or more and limited authority over smaller institutions. However, many legal and regulatory shortcomings remain. The CFPB cannot impose rate caps on lenders. State laws remain a patchwork, providing borrowers with widely varying degrees of protection against predatory lending. Further, no law requires a plain language document that outlines a borrower’s rights in the lending market and in the judicial system.

Canada also struggles with predatory lending practices. Almost two million Canadians use payday lending services each year^[4]. (Payday loans are explained by the Financial Consumer Agency of Canada as “a short-term loan that you promise to pay back from your next paycheque, usually within 14 days…Payday loans are very expensive compared to other ways of borrowing money.”)^[5],^[6] The Canadian Criminal Code caps interest rates at a relatively high 60 percent. Canada is also characterized by a patchwork of federal and provincial laws, regulations and oversight, which often leaves borrowers burdened with excessive debt.

The Union for Reform Judaism has previously adopted resolutions regarding discrimination in matters of economic investment and set forth a goal of pursuing racial and gender equality, and economic justice in our synagogues and communities (“Commitment to Racial Justice” (1963) and “Economic Justice for Women” (1983)). In 1997, the Union adopted a resolution on Socially Responsible Investment and implemented the Chai Investment Program (CHIP), with the goal of 1.8% of the URJ’s invested funds as well as those of individual congregations being invested in community development vehicles (such as local credit unions and loan funds) that have as their mission to increase access to credit for those who would otherwise not have access to the financial resources necessary for economic development. This goal has been met with respect to the Union’s endowment, and many congregations are also participating in this initiative. Information about the CHIP program can be found on the RAC’s website. The Central Conference of American Rabbis has also spoken on the importance of responsible business dealings (Economic Justice in the Jewish Community (1989), Socially Responsible Investing (1989).)

THEREFORE, the Union for Reform Judaism resolves to:

1. Support enactment and enforcement of state, provincial and federal legislation and regulations that would:

   • Prohibit lenders from providing loans at unreasonable rates;
   • Require lenders to consider borrowers’ ability to repay the loan, interest and other fees; and
   • Mandate additional mechanisms designed to increase borrowers’ understanding of the loan and loan terms, including requiring lenders to provide borrowers with plain language documents explaining the provisions of the loan and detailing their rights in the collection process;
2. Support public and private measures that expand access to fair and ethical banking services, with particular attention to the needs of low-income and other vulnerable populations; and
3. Encourage individuals, congregations, and all Reform Movement institutions to utilize financial institutions that exercise responsible lending practices and that do not engage in predatory lending.
4. Encourage our congregations individually and in partnership with other houses of worship to provide opportunities for congregants to improve their financial literacy such as education about the dangers of predatory lending, and the need for responsible use of credit; and
5. Urge congregants with professional expertise to volunteer their time educating others about financial best practices.