Independent Banker - August 2021 - 59

their loans. When that happens,
banks generally don't want to
foreclose because of the potential hit
to their reputation in the community.
So, they do as they do with any
business loan that goes sour: They
ask the borrower what's causing the
missed payments and try to work out
a solution. However, churches have
an advantage over regular businesses
in that they can raise money by
asking members to contribute to a
special offering or by fundraising.
" We've seen several organizations
recover using their own particular
fundraising tactics, such as special
fundraisers or revival celebrations,
to liquidate their debt, " James says.
" All religious organizations have
some [fundraising opportunities]
like that. "
Sometimes, the solutions are
unorthodox. In the case of the church
whose pastor had an affair, causing
half of the congregation to leave,
McComb engineered an exchange of
bank properties between that church
and another church client that
needed more room and was able to
take over the payments.
" The other church was busting
at the seams and needed a bigger
building, so we put them together
and said, 'How about you guys
swap?' " he says. " We ended up
figuring out if there were any cash
differences and made a deal. "
In the other case, where the new
pastor didn't live up to the former
pastor, McComb connected the
shrinking church to another faith
organization that had been meeting
in a high school and wanted a
building of its own. The two merged
congregations.
" They came together and now
have one church and they are able to
service the debt, " he says.
Hobbs says that in two cases in
which clients of the bank were at risk
of default, Bank of the Bay found
other lenders that were willing to
take over the loans.
" These were for-profit organizations
How Devon Bank handles
interest-free lending
Many Devon Bank borrowers practice faiths that prohibit
them from paying interest, a fundamental component of
traditional lending. The $420 million-asset community bank
is located in a neighborhood of Chicago heavily populated
by Orthodox Jews and Muslims, whose religious traditions
place restrictions on paying or receiving interest, though how
stringently they adhere to those restrictions varies.
" For Jews, the Bible says, 'Thou shall not deal in interest
with thy neighbor, but you can with a stranger,' " says David
Loundy, the bank's CEO and chairman of the board. " So, they
define that as meaning they cannot deal in interest with other
Jews, but others are fair game. For Muslims, it's considered
to be war against God to deal with interest, so there's a larger
percentage of Muslims who take that seriously. "
For customers who won't pay interest, Devon Bank offers
two financing options. The first is a cost-plus sale where
the community bank buys a property and then sells it to the
customer at a marked-up price on an installment plan without
interest. This is primarily used for residential mortgages, and
Devon Bank offers the product in 25 states.
" They are simply buying our house, " Loundy says. " We
design it to be economically identical to a conventional loan. "
As with a regular mortgage, the buyer of a property using
the cost-plus model owns the property at closing. And if the
borrower defaults, the bank can foreclose.
The other model Devon Bank uses is rent to own.
Loundy says this model is used more often for commercial
transactions, because the rent payments can be tied to an
index, unlike in the cost-plus model where the payments
remain the same throughout the financing period. In the rentto-own
model, the title transfers when the borrower finishes
the payments.
Interest-free finance has been part of Devon Bank's
business for about 20 years, Loundy says. " A lot of our
customers are thrilled that [we] understand their concerns
and are making an effort to accommodate, " he adds.
that were pursuing a business
strategy of making patientmoney
loans to churches, " Hobbs
says, " and they hoped to have
longer-term relationships with
the churches. "
While there can be challenges like
any other type of group, the bottom
line for community banks that lend
to faith-based organizations is that
it's good for business.
" It's no different from other
lending, " Hobbs says. " We've not
had more adverse situations than
with any other category. And it's
an opportunity to have a good
loan and burnish our image in
the community. " 
Ed Avis is a writer in Illinois.
independentbanker.org Q 59
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Independent Banker - August 2021

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