People struggling to make ends meet will have a fairer alternative to payday loans thanks to a new partnership announced this week between the Memphis Black Clergy Collaboration and Hope Credit Union.
The “Borrow and Save” program offers low-interest loans of up to $ 1,000 so residents can avoid predatory loans that often become a debt trap, said Rev. J. Lawrence Turner , senior pastor of the Mississippi Boulevard Christian Church (Disciples of Christ), who is a collaborative member.
“Many Memphis residents have been forced to obtain payday loans to deal with financial emergencies,” Turner said in a statement. “But relying on payday loans is ending today. “
Shelby County has the highest number of predatory lenders – 232 – in the state, according to a 2017 Metro Ideas Project to study. Predatory lenders include payday lenders, title pawnbrokers, flexible credit and check tellers.
“We know that payday lenders are putting their businesses in low income black and brown areas because these are the people who… need it most,” said Shirley Bondon, executive director of collaboration.
However, even controlling for income and other factors, payday loan companies are disproportionately concentrated in black and brown communities, according to a survey of California payday lenders, according to a 2009 report. Center for Responsible Lending report.
There is a need for short-term loans, Bondon said, “but the interest rates they charge our people are robbing the community of millions that could be used to improve our communities.”
The average payday loan is $ 375 with an interest rate of 391%, according to a 2016 study by Pew Charitable Trusts. In Tennessee – the Place of birth payday loans – Payday loan amounts are capped at $ 425 and businesses can charge a maximum interest rate of nearly 460%, according to the Metro Ideas Project study.
The high percentage of people living below the poverty line and underfunded in Memphis makes Memphis a key target for predatory lenders, said Latoya Brewer, vice president of Hope Credit Union, administrator of the regional branch, which helps Bondon to establish the program.
In Memphis, which is two-thirds black, just over 1 in 3 people are either unbanked, which means they don’t have a bank account, or under-banked, which means they use financial services such as payday loans in addition to traditional banks, according to Prosperity Now analysis federal data from 2017.
A step in a tough fight
For years, city and county lawmakers have addressed the issue, and in 2009 adopted a joint ordinance unless the payday lenders are within 1,000 feet of homes. In September, Memphis City Council pass a resolution calling on the state to ban businesses. Councilor Chase Carlisle, who brought the resolution, then noted that the city had limited options since the state allowed payday lenders.
State laws, which are favorable to payday lenders through well-funded lobbying, largely prevail over local government options, researchers from the Metro Ideas Project have found. However, cities are not entirely devoid of options, including three recommendations made in the report: require storefronts to have clear language warnings and signage, require a municipal permit, and support competitive alternatives.
A competitive alternative is exactly what Bondon hopes to deliver as she intends to tackle the businesses she believes contribute to cycles of poverty.
How the program will work
Prospective borrowers should request a referral through a coordinator at any BCCM member church. A list of member churches will be available on the BCCM website when the program goes live.
Approved applicants have the option of borrowing $ 500 for six months or $ 1,000 for 12 months, with an annual interest rate between 6% and 18%. However, if half of the loan will go to the borrower immediately, the other half will go to a savings account. Once the loan is repaid, the borrower will have access to the other half of the loan plus the interest accrued on the half placed in savings.
A borrower can only have one loan at a time although there is no maximum on the total number of loans a person can take out. After a borrower’s first loan, the program will require participants to take financial literacy classes in hopes of reducing their reliance on short-term loans, Bondon said.
“It’s a path to help us help people stabilize their financial lives and help them move up the economic ladder by borrowing for their short-term needs and saving at the same time,” Brewer said.
Bondon and Brewer expect to accept applicants within six to eight weeks.
The loans will be backed by a fund created by the BCCM and matched by Hope. BCCM has already raised $ 10,000 to start the program, but Bondon wants to raise an additional $ 40,000.
To give their congregations access to the program, churches can become dues-paying members of the collaboration or contribute $ 2,000 into the fund.
The Black Clergy Collaborative, founded by Turner, led by Bondon, is made up primarily of black churches in Memphis and focuses on poverty reduction. Being a person of faith is more than charity, said Bondon. It is also asking for justice.
“We are responsible for each other… and this problem is directly related to it,” said Bondon. “If we are responsible for our brothers and sisters… we cannot stand and watch as they are being exploited by others.
To donate or learn more about the program, email Bondon at [email protected].
Carrington J. Tatum is a member of the body of Report for America, a national service program that places reporters in local newsrooms. Email him at [email protected]
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