A few years ago, a man visited Pastor Wes Helm at Springcreek Church in Garland, Texas, and told him about his financial problems. Helm scanned the man’s budget and noticed a large monthly expense – a payday loan fee three times the amount of the loan itself.
“I thought it couldn’t be legal,” Helm said. “Our church started digging and examining this in our community and found out not only that it was legal, but that they were everywhere, that dozens and dozens of our families in our church had lost thousands of dollars. in costs, they had lost vehicles, sometimes even houses.
Helm and other faith groups persuaded city officials to pass tougher payday loan laws. Springcreek Church is also planning to offer small personal loans to parishioners at an interest rate of 4%.
Helm hopes the loan program will expand beyond the church. He wants local employers to launch similar programs for their workers.
But Helm is reluctant to call them payday loan alternatives.
“If you have someone who is stealing from people in your community, you don’t need an alternative to theft,” he said.
The Pew Charitable Trusts estimates that 12 million Americans use payday loans each year. They are designed to be very short term, but they often turn into new loans because borrowers cannot repay them.
The average loan is $ 375, turns into new loans for five months, and accumulates $ 520 in fees and interest.
“Borrowers want three things: lower prices, modest installment payments and quick approval,” said Alex Horowitz, senior researcher at Pew.
Payday loans are for people who generally cannot get approved for bank loans.
“This isn’t a consumer who can just pull out a credit card or tap into the equity in their home,” said Greg McBride, chief financial analyst for Bankrate.com. “These are often consumers with few other assets. They have poor credit or no credit in many cases, and even documentation of income can certainly be a challenge in these cases.”
Over ten years ago, Todd Hills entered the payday lending business on his own.
“Once we got into the business and really observed how it worked, we learned that a client never goes into debt,” said Hills, who now runs online pawnshop Pawngo. com.
In less than six months, Hills ended the payday loan operation and offered these clients his own alternative: he converted them to pawn shops, which he said were less damaging and much easier to handle. refund.
The root of the payday loan problem is poor budgeting and poor planning, said Jim Chilton, founder of the Society for Financial Awareness, a nonprofit education group. He advises people to consider other options, such as refinancing a car.
“People who plan manage their money,” Chilton said. “Their money does not manage them.”
But Diane Standaert, director of state policy for the Center for Responsible Lending, said many payday borrowers only turn to these less risky options after having had problems with payday loans.
“I think as people use their options, they’re trying to get out of a really tough situation with a loan that’s basically designed to be almost impossible to escape,” she said.
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