Grant County Organizations Create Loan Program to Replace Emergency Payday Loans
Two organizations are teaming up to provide small loans to residents of Grant County, in an effort to discourage the use of high interest payday loans. The “Bridge the Gap” loan program aims to create better financial literacy and help residents lift themselves out of poverty.
Grant County has the third highest poverty rate in Indiana, at 16% in 2019, according to the U.S. census. Grant County-based Afena Credit Union has developed a program to try to reduce this percentage.
Experts say showcases payday loans and the cycle of debt can increase wealth disparities, especially for communities of color.
Marion is the seat of Grant County and is home to nearly 15% African Americans, according to the 2019 U.S. Census.
Afena CEO Karen Madrey said high interest emergency loans can lead to a cycle of borrowing and repayment.
“When you’re in a very poor community, it makes the residents of the community a bit more vulnerable,” Madrey said. “And we know there are lenders going after it.”
Madrey said one of her goals is to make the credit union aim to provide equitable financial services to those who are financially vulnerable or marginalized.
The “Bridge the Gap” program gives members immediate access to small loans of $ 500 to $ 2,500 with interest rates as low as 4.25%, unlike payday loans where the average interest rate. is almost 400%.
Dawn Brown is the CEO of the Grant County Community Foundation. Almost three years ago, the foundation embarked on a new strategic plan. One element was to launch an impact investing strategy in which foundations take a portion of their endowment and invest it in programs that can impact the community.
In this case, the foundation took a million dollars and invested it in the Bridge the Gap loan program.
Brown said it was at a lunch where she and Madrey made the decision to try and team up. Afena had been approved as a Community Development Financial Institution or CDFI, which meant that it could provide loans to families who might otherwise not be able to obtain them.
“I presented it to my board of directors when COVID arrived because I knew at that point these families were in an even more difficult situation than they had been before,” said Brown.
But payday loans created a cycle of indebtedness long before the start of the pandemic. Yasmin Farahi is Senior Policy Advisor at the Center for Responsible Lending, or CRL. She said there are 262 payday loan storefronts in Indiana alone.
“It’s a major problem in Indiana, which drains more than $ 300 million from working Hoosier families over five years,” Farahi said.
CRL’s mission is to ensure a fair and inclusive market for all creditworthy borrowers. Farahi advises organizations and lawmakers working to eliminate abusive lending practices.
Farahi said the one-time emergency loan was a myth.
“They are relying on people with more than 10 loans a year, unable to meet the terms and end up being unable to escape the debt cycle,” Farahi said.
Sherry Dixon is the lead ambassador for the Bridge the Gap program. Her job is to go into the community and tell people about the program and encourage them to apply for a loan if they need it.
She said the position gives her the opportunity to get out into the community and help people without them feeling judged for their credit score or budget.
“I’m actually here to offer advice on how to improve your credit report, tips on how to start making a monthly budget,” Dixon said.
As of March 1, nearly 80 loans had been issued, lending more than $ 170,000 to members with an average credit score of 414, including 21 participants with a credit score of zero.
Madrey said she wants the credit union to teach people how to manage their finances and help them achieve their financial goals.
All loan officers are certified financial advisers. Each person who receives a loan will also benefit from free personalized financial coaching.
“One of the reasons I’m so passionate about this topic is that no one has ever told me,” Madrey said. “I learned by making mistakes.”
As members repay their loans, the money is deposited into a separate savings account to help them build an emergency fund.
Dixon said people were very receptive and grateful for the program.
“I know we’re not supposed to kiss each other, you know about social distancing,” Dixon said. “I got hugs from new members, I had a few tears from new members. I only got happy remarks.
Speaking to anyone from Afena or the Community Foundation, it is clear that the program is above all about the people they can help.
Brown said that while there is always a return on the Community Foundation’s investment, from members paying interest, that is not the only result they are looking for with the program.
“But the main reason we would be able to do that is social feedback,” Brown said.
Madrey said the program is designed to help people get back on their feet once they return to work. In order to receive the loan, members must have a source of income, which they can show with two pay stubs.
“This is to help close any gap they have due to their lack of COVID,” Madrey said.
Monthly payments can be as low as $ 35 and members are encouraged to make weekly payments of $ 10 to ensure they always pay on time. The focus is on low-income families with incomes of 200 percent or less of federal poverty guidelines.
While other programs have seen lockdowns due to COVID-19, the Bridge the Gap program has been pushed forward by this one.
“It was kind of brought to the fore once we started seeing some of these true stories that our families were going through,” Brown said. “And we wanted to see what we could do to give them some relief, some stability and maybe just a little bit of hope.”
With an investment of $ 5 million over five years, Madrey said she hopes to see their community’s poverty rate drop.
As the Bridge the Gap loan seeks to end the loan cycle in Grant County, Fahari said there are organizations and lawmakers working to end it at the state level.
“There is a way to stop this,” Farahi said. “So 17 states over DC have stopped predatory payday loans with a rate cap of around 36%.”
An Indiana Statehouse bill has been making its way through the legislature since 2018. Farahi said passing these rate caps is the most effective way to end payday loan debt cycles.