Program seeks to put payday lenders out of business

People struggling to make ends meet will have a fairer alternative to payday loans thanks to a new partnership announced this week between the Black Clergy Collaborative of Memphis and Hope Credit Union.

The Borrow and Save program offers low-interest loans of up to $1,000 so residents can avoid predatory lending that often becomes a debt trap, said Reverend Dr. J. Lawrence Turner , Senior Pastor of Mississippi Boulevard Christian Church (Disciples of Christ), who is a Contributing Member.

“Many Memphis residents have been forced to take out payday loans to deal with financial emergencies,” Turner said in a statement. “But relying on payday loans ends today.”

Shelby County has the most predatory lenders – 232 – in the state, according to a 2017 Metro Ideas Project study. Predatory lenders include payday lenders, pawnbrokers, flexcreditors and collectors of checks.

“We know that payday lenders are locating their businesses in low-income black and brown areas because those are the people who…have the greatest need,” said Shirley Bondon, executive director of the collaboration.

However, even controlling for income and other factors, payday lending businesses are disproportionately concentrated in black and brown communities, according to a survey of California payday lenders, according to a report from the Center for Responsible Lending of 2009.

There is a need for short-term loans, Bondon said, “but the interest rates they charge our people deprive 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 birthplace of the payday loan — 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 underbanked in Memphis makes Memphis a key target for predatory lenders, said Latoya Brewer, vice president of Hope Credit Union, regional branch administrator, which helps Bondon to establish the program.

In Memphis, which is two-thirds black, just over one in three residents are either unbanked, meaning they don’t have a bank account, or underbanked, meaning they use financial services such as payday loans in addition to traditional banks, according to a Prosperity Now analysis of federal data from 2017.

A step in a difficult fight

For years, city and county lawmakers grappled with the issue, and in 2009 passed a joint ordinance banning payday lenders from being within 1,000 feet of homes. In September, the Memphis City Council passed a resolution asking the state to ban the businesses. Councilman Chase Carlisle, who brought the resolution, noted then that the city had limited options since the state allows payday lenders.

State laws that are favorable to payday lenders thanks to well-funded lobbying largely preclude local government options, Metro Ideas Project researchers found. However, cities are not entirely without options, including three recommendations made in the report: requiring storefronts to have plain language warnings and signage, requiring municipal licensing, and supporting competitive alternatives.

A competitive alternative is exactly what Bondon hopes to deliver as she intends to wage a fight against companies that she believes contribute to cycles of poverty.

How the program will work

Prospective borrowers should seek 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 over six months or $1,000 over 12 months, with an annual interest rate of between 6% and 18%. However, while half of the loan will go immediately to the borrower, the other half will go into 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 pathway to help us help people stabilize their financial lives and 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 BCCM and matched by Hope. BCCM has already raised $10,000 to start the program, but Bondon wants to raise another $40,000.

To enable their congregations to access the program, churches can become dues-paying members of the collaboration or contribute $2,000 to 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, Bondon said. It is also about asking for justice.

“We are responsible for each other…and this issue speaks directly to that,” Bondon said. “If we are responsible for our brothers and sisters…we cannot stand and watch as they are exploited by others.”

To donate or learn more about the program, email Bondon at [email protected].

Carrington J. Tatum is a corps member of Report for America, a national service program that places reporters in local newsrooms. Email him at [email protected]

This story is brought to you by MLK50: Justice through Journalism, a nonprofit newsroom focused on poverty, power, and politics in Memphis. Support independent journalism by making a tax deductible donation today. MLK50 is also supported by these generous donors.

Do you have an idea for an article, advice or a comment? Email [email protected]