Do you live paycheck to paycheck? Do you know anyone who does? More than half of Americans do, with no emergency savings and no cushion.(1) While many rely on credit cards or lines of credit to cover unexpected expenses, millions who cannot access such services rely on payday lenders to get them through. Most of these payday lenders are sharks, preying on poorer neighborhoods. Mortgage loan interest from a bank runs at 4% - 5% per year; credit cards typically charge 10% - 20%. But go to a payday lender when you're in need, and they will charge you anything from 100% to more than 1000% - sometimes with another fee if you can't pay it off on schedule. That $300 you need to pay for your child's medicine or an emergency car repair may end up costing you $1000, or even more, by the time you are able to pay it off.
Thousands of payday loans are issued every day. Business is booming. California and plenty of other states have more payday lending outlets than they have McDonalds'. Not to mention the seemingly inexhaustible selection of websites which promise cash advances on a few clicks - at exorbitant rates.
The statistics are scary. Seriously scary. Mehrsa Baradaran is a University of Georgia professor and the author of the new book How the Other Half Banks. It's an explanation of how we got to this point, how banks have abdicated their social responsibility to provide credit to the non-affluent. In a recently published article in The Atlantic, continuing on with her book's theme, she states:
anywhere from 20 to 40 percent of the population must rely on check cashing or payday lending services.
The impact on those most reliant on these services? Devastating. From the
latest Harper's Index...
Amount the average worker without a bank account will pay in unnecessary fees over a lifetime: $40,000.
But suppose there was a place where a person could get emergency money for 1/3 to 1/2 of what it costs from all these other places. Suppose you could walk or take public transportation to a place that made such loans at cost, not for profit. Suppose the people working there would talk with you at the window, or sit down with you and, without judgment, help you understand and improve your financial situation and credit rating. Suppose they could help you - if you want - get to the point where you could get those bank-level interest rates.
This isn't fantasy, and it isn't daydreaming.
Community Check Cashing, (new website here) at Fruitvale Plaza in Oakland, provides payday loans, larger ("installment") loans, financial counseling and other financial services for a fraction of what their competitors charge. They have a proven track record of helping customers get onto their financial feet.
Yes. No. No catch.
Community Check Cashing is a non-profit, established to help the community it serves, not to steal from it. CCC charges to pay its rent, its expenses and a fair wage to its employees. No money is shipped out to absentee owners. No money goes to the Wall Street financiers who back the for-profit payday lenders. Nor does CCC rely on donations to keep its doors open; instead, it contracts to do financial counseling, something it excels at, off site, to augment its revenues.
Still don't believe it? Here's what CCC charges, compared to other operators in Oakland.
|
Description
|
What CCC charges
|
What they charge
|
| A $300 payday loan |
$15-$23
|
$45
|
| a one year $2500 loan |
$410
|
$2000 - $3000
|
| Cash a $500 payroll check |
$6.25
|
$15.00
|
The idea to create a not-for-profit emergency cash-lending storefront came to CCC's founder Dan Leibsohn back in 1993. He began working on it in 1999 but it took until 2009 to turn the idea into reality. Dan established CCC and is now the President of Community Development Finance, CCC's parent organization. Previously he worked at the San Francisco Foundation on their Housing Task Force. He has been on the boards of many nonprofits, including the Non-Profit Housing Association of Northern California. He was the President and Founder of the Low Income Housing Fund (now, the Low Income Investment Fund). He's seen the needs of low-income communities.
CDF's goal [was] to create a nonprofit check cashing institution that will be a financially sustainable social enterprise offering lower prices and a broad range of financial services designed to help low income families move out of poverty and into the financial mainstream. The project is designed to provide low-income households with the services they want and need, without the asset-stripping characteristics common to the fringe banking industry.
--Daniel Leibsohn
CCC has been quietly serving the Fruitvale community for six years now, saving more than million dollars for its customers, mostly people who either live or work very close to the storefront. It's not just customers who benefit, though - most of those savings channel through the local economy in the form of
additional purchases of goods and services instead of ending up in some Wall Street investor's offshore account.
So why is CCC one of only three non-profit payday lending operators in the US? (And why do the other ones depend on donations to keep their doors open?) Why doesn't every city have its own nonprofit lender? Why hasn't the competition from a lower-cost alternative driven the for-profits to extinction - why hasn't nonprofit lending extended across the United States?
These are good questions. Leibsohn and CCC struggle just to stay in business, let alone think about expansion or a massive publicity campaign. The federal government, including the Consumer Finance Protection Bureau and other regulators, is coming down increasingly hard on payday lenders - making no distinction for nonprofits. In fact, the feds probably don't realize that nonprofit payday lending is possible - let alone that it exists. The government is putting up more and more roadblocks to small operations by forcing them to comply with multiplying regulations and rules. In fact CCC is in danger of going out of business because it may no longer be able to find a bank willing to provide it with the financial services it needs.
It is also unfortunately the case that people who might otherwise spread the word and help out can be turned off by the very idea of "high-interest loans" -- much higher than banks, even if much lower than predatory lenders. They are turned off despite the fact that these loans provide what has become, in a modern benighted America, an absolutely necessary service at a rock-bottom feasible price; despite the fact that the loans are in small enough amounts that banks won't even consider them. As Baradaran writes
Poor individuals may need banks, but the reverse is certainly not true.
This all should change. "Should," not "Will."
Locally, more people should recognize the relative bargain they get at CCC. Oakland's government should recognize the service CCC is providing, and support Leibsohn's efforts to expand, creating clones in multiple locations throughout Oakland, saving residents additional millions.
Nationally, other cities should be looking for how to develop CCC equivalents. As bad as for-profit payday lenders and their ilk are - and they can be really devastating(2) - the Federal Government needs to recognize that right now there is no alternative to payday lenders other than (real, illegal) loan sharks (3) (4). Neither Prohibition nor the War on Drugs worked. Banning, or effectively banning, payday lenders seems unlikely to work either.
Philosophically, nonprofits, foundations, and donors should come to understand that there is no way to provide loans at costs lower than CCC's to those in need without subsidies or billionaire patrons; expenses and salaries have to be paid. Everyone should recognize that a vitally needed loan at half the cost is better than the same loan at the so-called "market rates" that feed Wall Street's insatiable greed, and understand that such loans can be the only viable alternative to leaving a child in pain or losing one's job.
In a more perfect union neither CCC nor for-profit payday lenders should have to exist. But as things stand CCC is a boon to its community. Until such time as medical care is truly a right; until everyone who needs one has a bank account at a ubiquitous Postal Bank which allows truly inexpensive short-term and small-amount loans for life's inevitable emergencies, the potential for community relief with expanded or cloned CCC-type operations is enormous.
Strike Debt Bay Area is working with Community Check Cashing to promote and expand its non-profit model of small-loan lending. SDBA is affiliated with Strike Debt New York (who brought you the Rolling Jubilee, which ultimately used $701,317 to abolish $31,982,455.76 in debt), and the Debt Collective, which brought you the first ever, organized, student debt strike (and roiled the Department of Education, calling out their lackluster response to the plight of students at private, for-profit, and now bankrupt Corinthian College).
For once, we have a social problem which has a demonstrated solution. We could make it a nationwide reality.
I invite your thoughts and comments.
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(1) Estimates range from around 40% to as high as 80%. It probably depends a lot on exactly how you define "paycheck to paycheck" and, when conducting a poll, how you ask the question. In any case there are far and enough people without reserves to support a flourishing payday loan industry here in the United States.
(2)
A bureau analysis last year of 12 million payday loans found that 22% of borrowers renewed their loans at least six times, leading to total fees that amounted to more than the initial loans. -- LA Times
(3) Postal Banking (here and here) has been touted as an alternative, and it might well be. However, that's about as politically likely right now as Congress instituting Sharia Law.
(4) Microfinance (e.g., here) is sometimes suggested as an alternative approach. But microfinancing operations often only do overseas lending and specialize in very small business loans, not emergency cash.
