(Note: This is Part 5 in a series on Pay Day lending and its effect on our Waco community. For the rest of the series, click here: Pay Day Lending in Waco. — ABT)
By Shannon Kendrick-Wittmer,
To many people, Goodwill is synonymous with thrift store, a place to find discounted clothing, furniture, or other treasures discarded by someone looking to declutter their house or make room in their closet. What most individuals don’t realize is that by donating gently used items or shopping at a Goodwill retail store, people are helping Goodwill achieve their primary mission: putting people to work. The money spent on purchases at Goodwill stays in the local community and is used to fund various employment, education, and training programs to help individuals get a job, improve their skills, and become self-sufficient. Heart of Texas Goodwill’s Learning Center services focus on job attainment, job retention, and skills building. Participants can get help improving their interview skills techniques, creating a resume, searching for a job or they can attend one of our many classes, such as Microsoft Word and Excel, GED, ESL, Parenting, and Anger Management.
While helping people gain the skills necessary to land a job is our main mission, we also recognize that we can’t help someone find a job without giving them the skills necessary to manage the money they earn. For many years, we have provided one-on-one budgeting services, financial literacy classes, and education on the pitfalls of using pay day lending, but we still encounter a large number of our participants who have fallen into debt because of the need to utilize pay day lenders for quick cash. This is a scenario playing out at many other social service agencies around Texas. At the state level, the 15 Goodwill agencies in Texas joined together, on numerous congressional years, to introduce bills that would enforce regulation of Pay Day lenders in Texas. Each time legislation was introduced, it was voted down.
Heart of Texas Goodwill, along with the other Goodwill’s in Texas, decided to focus efforts concerning pay day (predatory lending) at the local level. About this time the Citizens for Responsible Lending had their first meeting. It wasn’t long before we realized that our organization’s role could be to offer an alternative to pay day lending in the Waco area, in the form of the Community Loan Center.
There has been a lot of buzz in Waco lately about the Community Loan Center, who can utilize it, and how Goodwill is involved. Although it is still in its infancy in Waco, we foresee it as being a viable alternative to certain people needing access to cash quickly.
So what is the Community Loan Center (CLC)? The CLC Small Dollar Loan Program is an employer-based small dollar loan program administered through local nonprofits in Texas. The CLC recruits local employers to participate, at no cost, and the program is then marketed to the employer’s employees. Employees who participate are able to borrow up to $1,000 at 18% interest with up to 12 months to repay the loan. Employees can apply for the loan using an online portal and once approved, the funds are wired into their personal bank accounts. Repayment of the loan is done through payroll deduction, set up by the employer.
What is Goodwill’s role in the CLC? Heart of Texas Goodwill has committed to being the non-profit administrator of the Community Loan Center. As the administrator of the CLC, we will be responsible for recruiting area employers to sign up for the program, assisting those employers in marketing the program to their employees, and raising funds to be used as capital for the loans made to employees. Heart of Texas Goodwill Industries made the decision to create a separate 501c3 corporation for the new company, which will be named the Community Loan Center of the Heart of Texas. A board of directors have been appointed to govern this corporation and administrative duties will be handled by existing staff employed by Goodwill.
Where does the money come from to issue loans? The loan capital used by the CLC can come from a variety of sources, such as grants, investors, or low interest loans from banks. Heart of Texas Goodwill Industries, along with other community members, will be working continuously to seek funding sources for the capital pool. As the funds increase, more employers can be added to the program, therefore increasing the number of employees with access to the small dollar, low interest loans.
Why is the interest rate 18%? This may seem high to some people but it very modest in comparison to the 400%-600% charged by pay day lenders for similar loans. The 18% interest fee covers various items such as: administrative costs to run the program, defaulted loans, and interest payments for loans used in the capital pool. This interest rate also helps to increase the amount of money available in the capital pool.
Who can take part in the program? Only employees working for employers who have signed up for the program are eligible to take a small dollar loan through the Community Loan Center of the Heart of Texas. Currently, in the Waco area, the only employers enrolled in the program are the City of Waco and Waco ISD. Employees working for these entities may take a small dollar loan. At this time there is only enough money in the capital pool to cover these two employers. When we have more money in the capital pool, we can add more employers.
The Community Loan Center of the Heart of Texas will not eradicate pay day lenders all together, but we strongly believe it is a step in the right direction toward a more financially secure community. It provides people who need a small loan quickly an alternative to payday lending. We hope to see the program grow in the future to include many more employers. To that end we welcome the help of anyone in the community wanting to assist us in fundraising, which will be a key factor in growing the CLC in Waco. Anyone with questions about the Community Loan Center may contact me at the Goodwill Corporate Headquarters in Waco at 254-753-7337.
Shannon Kendrick-Wittmer is the Vice President of Mission and Workforce Advancement at Heart of Texas Goodwill Industries. She has a BA in Psychology from Baylor University and a Master’s in Business Administration from Tarleton State University. She has lived in Waco for the past 15 years, worked at Goodwill for 11 years, and has been married for a year and a half to Jonathon Wittmer, a field engineer with TYMCO.
The Act Locally Waco blog publishes posts with a connection to these Aspirations for Waco. If you are interested in writing for the Act Locally Waco Blog, please email [email protected] for more information.
by Lisa Dickison
(Note: This is Part 4 in a series on Pay Day lending and its effect on our Waco community. For the rest of the series, click here: Pay Day Lending in Waco. — ABT)
Reason 1: The label “predatory” for Payday loans is an exaggeration.
A predator in the animal kingdom is one that stalks and hunts its prey. The payday loan companies are not stalking customers and forcing them into the store. Customers freely enter. They don’t grab the customers’ hands and force them to sign. In spite of the stacks of pages they must sign, a transaction is very simple: to borrow this much, for this time period, you will pay this much in fees and this much total. “Predatory” is not an accurate description. Everything is in the open and not forced.
Reason 2: Restrictions on payday loans remove options from those who already have few options.
I have experience with this. I’m a customer of these places. Much less so now that I’ve learned to better handle money, but it has saved me a few times. Once, I needed a $700 car repair. I didn’t have the cash on hand, but I needed my car. That’s how I got to work. I’m fortunate now that I can work from home. Many people do not have that luxury. For many, if they can’t get to work, they will lose their job. Restricting access to a quick way to get money just exacerbates the problem. Banks no longer loan money in those small amounts. They certainly don’t loan money to those with poor credit. If these loan companies cannot make a decent profit, which is the goal of being in business, they will leave town leaving those who already have few options with even fewer options.
Reason 3: It’s not the proper role of municipal government.
Different levels of government are designed for different purposes. The purpose of local government is to provide basic services (roads, water, trash collection) and to make laws that make it easier to live together in communities. We have laws that require lawns be mowed so that our neighborhoods are not overrun with vermin. State laws govern traffic laws for the most part, but cities decide where to put traffic lights, stop signs, and other traffic control devices. Municipal governments should not protect residents from their own poor decisions.
Despite these opinions, I absolutely support a market-based alternative that is not funded by taxpayer dollars. I hope that the alternative being proposed works and is sustainable. It may not totally replace payday loan providers, but it may give some relief to those who are in need of additional options to manage emergencies.
Lisa Dickison is a local political activist who has lived in Waco more than half her life. Her passions are defending the Constitution, election integrity and protecting the right of the people to self-govern. She is Republican Precinct Chair for Precinct 29.
The Act Locally Waco blog publishes posts with a connection to these Aspirations for Waco. If you are interested in writing for the Act Locally Waco Blog, please email [email protected] for more information.
by Jim Coston
(Note: This is Part 3 in a series on Pay Day lending and its effect on our Waco community. For the rest of the series, click here: Pay Day Lending in Waco. — ABT)
I had the privilege of serving as a City Councilman in Trenton, New Jersey, prior to coming to Waco. Despite what the national media may portray, the real action is in local politics. It is here that good government can offer immediate relief to citizens, foster opportunity and right wrongs. I believe the proposed ordinance to provide common sense regulation to the predatory lenders in Waco (also known as payday and auto-title lenders) will do all three.
As a former politician who drafted and passed legislation, I know that every ordinance produces unintended consequences. This is a given. And proponents like myself will bear some responsibility to respond to those unforeseen repercussions. Absolutely.
The fear of unintended consequences should not hinder or prevent our leaders from governing with purpose, that is from legislating intended consequences. It is these intended consequences that deserve some attention.
There are many fine details to the ordinance. I read it as having three main benefits for Waco and its citizens. The first requires each payday or auto-title lender to register with the City and to provide the names of its owners. This may seem a small matter; however, transparency is not one of the hallmarks of this industry. Knowing who is operating where can only serve the public good.
The second benefit concerns terms of lending offered to consumers. Payday lenders may not lend more than 20% of a consumer’s gross monthly income; auto-title lenders may not lend more than 70% of the value of an automobile. This provision should keep consumers from getting over-extended and stuck in a cycle of increasing debt. Furthermore, 25% of all payments must go towards reducing principals. Typical predatory lending practices keep the principal intact even as customers pay more and more in monthly fees. Those fees increase and accelerate, leaving the principal intact.
The third benefit requires these lenders to provide customers with information on available consumer credit counseling. Emergencies happen. People get sick. Cars need repairs. Unexpected expenses arise. There is a need among a portion of Waco citizens for access to capital on short notice. Predatory lenders provide this…service. Consumer credit counselors can do the same, with far less short and long term pain.
When this ordinance passes—I have faith in our municipal leaders—predatory lenders will still make a profit. Well and good. Waco citizens will still have access to quick capital. Well and good. But Wacoans will have options and far more favorable terms.
For some background on this industry, its origin, business model, connections to big banks as well as oft-cited talking points from predatory lending proponents, I refer you to Broke U.S.A. by Gary Rivlin. Be forewarned, it requires a strong stomach; the author provides in excruciating detail how this industry preys upon the poor, downtrodden and most vulnerable in society.
I have the privilege of serving as the Senior Pastor of Calvary Baptist Church located at 18th and Bosque in the Sanger-Heights neighborhood of Waco. Calvary is located only a few blocks from Waco Drive; and thus, only a few blocks from multiple predatory lending establishments. I come at this issue not from political or social concerns. I care about this matter because of my faith in and following of Jesus Christ. Karl Barth, the pre-eminent theologian of the 20th century, noted that the confession “Thy kingdom come” is the most radically political statement one can make. God’s kingdom will not have a place for payday or auto-title lending. It will have ample supply of mercy, grace and justice.
For some background on the divine abhorrence of usury, I refer you the Bible. With only slight exaggeration, you would be hard pressed to find a page within the sacred writ that does not speak of God’s protection over the poor, downtrodden and those most vulnerable in society, and corresponding judgment upon predators and those who do not seek their safety and justice alike. That protection is not reserved for some far off time or far off place. Followers of God are called to work for the redemption of those in need, and their predators, here and now. Passage of this ordinance is one means of declaring “Thy kingdom come!”
Jim Coston is Pastor to Calvary Baptist in Waco, husband to Julie, dad to Justin, Chloe and Samantha and ranch hand to his family’s chickens, goats and dogs.
The Act Locally Waco blog publishes posts with a connection to these aspirations for Waco. If you are interested in writing for the Act Locally Waco Blog, please email [email protected] for more information.
By Alexis Christensen
I’ve long been drawn to understanding how governmental systems work—whether it’s politics, civic engagement or policy. Often we think about law or policies from an impersonal perspective, but in reality, they can be very personal.
In Part One of this series we learned about the devastating effects payday and auto title lending has on our residents and our city. Because of the negative outcomes produced by these loans, many believe now is the time for action. In the world of community development, the grassroots movement becomes effective in creating change when community members who have experienced, dealt with or struggled through the situation voice their personal stories and ideas into the work.
So let us turn to the voices of the community, who have dealt with the negative effects of payday and auto title lending firsthand. For a moment, let us listen to the voices of experience.
Ms. Lewis, tell us your story.
Lewis: I am a single parent of two kids. My son is 17 years old and chronically ill and I have a 19 year old daughter in college. I got into desperate times and needed money due to my financial situation. I have to travel a lot with my son [to visit doctors]. He requires medicines through IV and has frequent doctor visits. Then I found out my daughter had medical issues too. I kept seeing all these ads and signs, so I went and got an auto title loan.
Christensen: How was that visit?
Lewis: Well, when I got the loan they made me feel so comfortable and they were so friendly but come to find out they were wolves in sheep’s clothing. As a single parent, I am stressed. I am trying to keep up with the bills and sometimes it’s hard but I do what I can to manage. When it comes to payday lenders, yes they are so nice and sweet when you first come through the door but…I wish I had never done it because of the outrageous fees they charge with interest and the harassing calls…When my son was in the hospital, they called me just about every day threatening to come and take my car, it was awful.
Unfortunately, Ms. Lewis is not alone in her experiences with payday and auto title lending. Let’s hear from Mr. Thomas, who is a veteran.
Mr. Thomas, tell us your story.
Thomas: I was in school and temporarily unemployed and took out both an auto title loan and a payday loan to catch up on my water and electric bills and pay for school. I actually got a job in the same week I took out the auto title loan, but couldn’t keep up with the loan payments and had my pickup repossessed. The original loan was for $1,000 and the auto title loan was for $4,000. I’ve been charged twice the amount of the original loans.
I’ll be paying these type of loans off forever because of the interest. There is no way to catch up. Me and my wife are currently trying to adopt our nieces and credit issues have come up as an issue [in the adoption process].
Lastly, let’s hear from Ms. Marks.
Marks: A long while ago I got an auto title loan for $500 and ended up paying $2400 on the whole thing. Loan interest rate was about 800%. I belonged to a credit union and explained situation and they bought out the auto title and payday loan.
It was so hard to get a loan anywhere else besides a payday loan place. The stores keep calling and asking about getting another loan. At [a local payday loan store] I got a loan for $150 and I’m on the way right now to pay $51 in fees today to extend it for two weeks and it won’t go toward principal. I have 6 months to pay it in full.
If I could change anything about them, lower the interest rate. They get away with it [high interest rates] because they say they’re not the lender and they can’t do anything about it.
These stories have come from people right here in our community. These brave ones have shared some of their most vulnerable moments with us to help see change happen at the local level. This is why the ordinance to help address the issues payday and auto title lending create is vitally important to our community. The ordinance is one part of the solution; we also need sound alternatives and education to see true systemic change. Find where you fit in this work and help create a flourishing Waco for all of us.
*Some names have been changed to protect the identity of the community members.
Alexis Christensen is a Community Organizer at Waco Community Development Corporation (Waco CDC).
By Dillon Meek
There has been a lot of talk lately (at least in my world) about payday and auto title loans and how our community should respond to the presence of this industry in our community (assuming there should be a response at all). This is the first post, in a series of posts, to address the topic of payday lending in Waco, Texas.
Other posts that will follow this one will include discussions on alternatives to payday lending that are available to borrowers, laws regulating payday lending (including the option for a local ordinance), and personal stories from people in our community who have been effected by payday lending.
But first, let’s look at what payday lending is, why it’s a problem and why we as a community need to respond.
Let’s Start at the Beginning: What is a Payday Loan?
Payday and auto title loans are high cost, small-dollar loans. They are offered with little-to-no consideration for a borrower’s ability to repay. Payday loans require proof of employment and access to a bank account via a post-dated check or electronic ACH authorization. The initial term is typically two weeks – until after the next paycheck. Auto title loans are secured by a car title; the amount loaned is based on the value of the car and they have terms of thirty days. They are both marketed on the basis of speed and convenience to people.
So What’s the Problem with Payday Loans?
Most payday loans are predatory. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly defines predatory lending as “imposing unfair and abusive loan terms on borrowers.” Here are some signs that a payday loan is predatory:
- Triple digit interest rate. Payday loans carry very low risk of loss, but payday lenders here in Waco typically charge fees equal to 400% – 500% APR.
- Unlike when a bank issues a loan, predatory lenders do not consider a borrower’s ability to repay. Payday lenders allow (and often encourage) consumers to borrow the maximum allowed, regardless of their credit history, wages, or ability to repay. If the borrower can’t repay the loan, the lender collects multiple renewal fees and makes more money. In other words, the more unsuccessful the borrower is, the more successful the lender is.
- Loan flipping (extensions, rollovers or back to back transactions). Payday lenders earn most of their profits by making multiple loans to cash-strapped borrowers. 90% of the payday industry’s revenue growth comes from making more and larger loans to the same customers. Often times this leads to a cycle of debt.
How is Waco Affected?
- $10.5 million is drained from the Waco economy annually as a result of these institutions.
- There are 36 storefronts in Waco, Texas. None are locally owned.
- On average, 12 cars are repossessed each week by auto title lenders.
- 3 out of 5 payday loans in Waco are to borrowers who pay more in interest than they do in principal.
Source: Texas Appleseed analysis of Texas Office of Consumer Credit Commissioner 2012 and 2013 Credit Access Business Quarterly and Annual Data Reports. Store location data is based on the Office of Consumer Credit Commissioner CAB licensing data for August 2014.
How Do We Respond?
A local Waco group, Citizens for Responsible Lending, is advocating and working hard for (1) the community to develop alternatives to payday loans, (2) education and awareness in the community regarding this issue, and (3) the city council to pass an ordinance regulating payday lending in Waco if the state and federal legislatures will not. Because Texas law does not prohibit predatory lending practices, 26 cities in Texas have passed a uniform ordinance. The other posts in this series will address each of these responses in more detail.
What I know is this: predatory lending is happening in Waco, Texas, and in order for our community to become financially secure, we need to engage a discussion about how we are going to prohibit our citizens from being exploited by this industry. You can participate in this discussion this Tuesday, December 8, at 6 pm at the City of Waco Operations Center at 1415 N 4th St.
Dillon Meek serves on the Waco City and is general counsel for a local investment company. Prior to that he served as an associate attorney at Haley Olson, PC, where he represented local governments, financial institutions, and energy companies. He is engaged to Lindsey Myers, a Waco ISD school teacher. You can contact him at [email protected].
The Act Locally Waco blog publishes posts with a connection to these aspirations for Waco. If you are interested in writing for the Act Locally Waco Blog, please email [email protected] for more information.