As pandemic stretches on, organizations offer alternatives to payday loan cycle

MEMPHIS, Tenn. — Tens of millions of people continue to struggle as the pandemic stretches on and many of them are among the millions of Americans who turn to payday loan advances to try and make ends meet.

They offer fast money, but their easy access buries debtors in a cycle from which some are unable to escape.

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There is no shortage of options for anyone looking for some quick money, and it doesn’t take much to get a payday loan: generally, all you need is a photo ID, a social security number, and proof of income.

Yet interest rates create a vicious cycle that’s difficult to break free from. However, there are some groups working to help people do just that.

With an annual interest rate as high as 459%, a $200 loan could end up costing more than $900.

“That, to me, is the definition of predatory. They win when you lose,” said Andy Posner, founder and CEO of Capital Good Fund, a nonprofit, U.S. Treasury-certified community development financial institution.

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The Capital Good Fund “helps people fix their finances” and offers small loans and personalized financial and health coaching in Rhode Island, Florida, Massachusetts, and Delaware, according to its website.

Shelby County is home to the highest number of payday lenders in the state, according to the independent urban policy research firm Metro Ideas Project, based in Chattanooga.

There are more than 230 payday lenders in Shelby County, according to the firm, almost double the 109 counted in Davidson County.

“For them to profit, you have to not be able to afford the loan as agreed in the contract,” Posner said during a Zoom interview. “The only way the lender makes money is if the borrower is worse off at the end than when they started the loan.”

Tens of thousands of people in Memphis use payday loans. According to the Metro Ideas Project, those most likely to have used a payday loan are people without a four-year college degree, home renters, African Americans, and people earning less than $40,000 each year.

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The loans are advertised for emergency spending, but 70% of borrowers use them for things like car, mortgage; and credit card payments, utility bills, food or rent, according to Metro Ideas Project and the Pew Charitable Trusts.

Along with sky-high interest rates, Posner said that amounts to inequity.

“These all contribute to what a lot of people call a poverty tax, so Black, brown, indigenous, low-income communities pay more for things other people don’t.”

That’s why Posner started the Capital Good Fund.

“I decided to start an organization that would provide alternatives focusing on marginalized communities and it’s grown since then,” he said.

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Hope Credit Union, a Black-owned bank with branches in five southern states, including Arkansas and Mississippi, is another U.S. Treasury-certified community development financial institution, according to its website.

“A lot of people are going from day to day, and they’re not looking long term,” said April Branch, manager of the company’s Ridgeway Branch in Memphis.

“A lot of people get stuck in the cycle of payday lending, and they feel like they can never get out,” Branch said.

Hope Credit Union’s loans are meant to help people rebuild credit and save, the key to breaking the cycle of poverty in many communities “versus the payday lending, where they’re just going to try to get you another loan just to cover that loan,” Branch said.

When asked by a reporter why it would be important to get Black people especially freed from that cycle, Branch, who is Black, said building generational wealth is a big factor.

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“Again, I think it’s important that we start to utilize our money financially and figure out ways that we can help to build the generational wealth.”

Branch recalled helping a man refinance a high-interest car loan to save instead. The man had an 18% interest rate, she said. After the bank refinanced his loan, he was able to begin saving.

“I’m trying to break that cycle and get them out of that and kind of see the big picture. … A lot of people assume they have $5 (and) that’s not enough to save, but you have to start somewhere.”

“If you get in the habit of starting, that will help you to encourage you to save into the future, so when you have issues where you have those emergencies that come up, you may have savings put aside that you can use instead of going to the payday loans.”

A statement was issued to FOX13 by the Consumer Financial Services Association of America, on behalf of the Tennessee Consumer Finance Association, the association “representing the licensed consumer financial services industry serving Tennessee consumers,” according to a spokesperson.

“The mission of the regulated consumer financial services industry is to ensure all consumers have access to cost-effective, transparent financial services and credit options when they need them. As community-based providers, we play a vital role in the lives and livelihoods of the millions of consumers and communities underserved, overlooked, or left behind by more traditional financial institutions, helping to enable and empower financial inclusion and stability,” the statement read.