MEMPHIS, Tenn. â Tens of millions of people continue to struggle as the pandemic spreads and many of them are among the millions of Americans who are turning to payday advances to try to make ends meet.
They offer quick cash, but their easy access traps debtors in a cycle that some cannot escape.
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There’s no shortage of options for those looking for quick cash, and it doesn’t take much to get a payday loan: usually all you need is photo ID, a social security and proof of income.
However, interest rates create a vicious circle from which it is difficult to escape. However, some groups are working to help people do just that.
With an annual interest rate as high as 459%, a $200 loan could cost over $900.
âTo me, that’s the definition of a predator. They win when you lose,â said Andy Posner, founder and CEO of Capital Good Fund, a nonprofit, US Treasury-certified community development finance 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 most payday lenders in the state, according to the independent urban policy research firm Metro Ideas Project, based in Chattanooga.
According to the firm, there are more than 230 payday lenders in Shelby County, nearly double the 109 counted in Davidson County.
“For them to benefit, you must not be able to pay the loan as agreed in the contract,” Posner said in an interview with Zoom. “The only way for the lender to make money is if the borrower is worse off at the end than when he 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, renters, African Americans, and people earning less than $40,000 a year.
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Loans are advertised for emergency expenses, 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.
With exorbitant interest rates, Posner said that amounts to inequity.
“All of this contributes to what many people call a poverty tax, so that black, brown, indigenous and low-income communities pay more for things that others don’t.”
This is why Posner launched the Capital Good Fund.
âI set out to create an organization that would provide alternatives focused on marginalized communities and it has grown ever since,â 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 community development financial institution certified by the US Treasury, according to its website.
“A lot of people go day-to-day and don’t look long-term,” said April Branch, manager of the company’s Ridgeway branch in Memphis.
âA lot of people are stuck in the payday loan cycle and they feel like they can never get out of it,â Branch said.
Hope Credit Union loans are meant to help people rebuild their credit and save, the key to breaking the cycle of poverty in many communities” compared to payday loans, where they’ll just try to get you a another loan just to cover that loan,â Branche said.
When asked by a reporter why it would be important to free black people in particular from this cycle, Branch, who is black, said generational wealth creation is an important factor.
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“Again, I think it’s important that we start using our money financially and find ways to help build generational wealth.”
Branch remembers helping a man refinance a high-interest car loan to save money instead. The man had an 18% interest rate, she said. After the bank refinanced his loan, he was able to start saving.
âI try to break that cycle and get them out of that and see the big picture. â¦ A lot of people assume they have $5 (and) that’s not enough to save, but you have to start somewhere.
“If you make a habit of starting it will help encourage you to save for the future, so when you have trouble where you have those emergencies that come up, you can have some savings set aside that you can use at the instead of going for payday loans.
A statement was released 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 consumers in Tennessee,” according to a spokesperson.
âThe mission of the regulated consumer financial services industry is to ensure that all consumers have access to cost-effective and transparent financial services and credit options when they need them. As community providers, we play a vital role in the lives and livelihoods of millions of consumers and communities that are underserved, neglected or left behind by more traditional financial institutions, helping to enable and strengthen inclusion. and financial stability,â the statement read. .
Cox Media Group