In the winter of 2016, Missy Juliette, now of 36 years, from St. Paul, Minnesota, had You have to choose between paying your rent and paying your heating and electricity bills overdue. His credit cards were maxed out and his wages were being garnished for back taxes. Obtaining a small loan from a bank was not an option, nor was borrowing money from the family. “He had asked them for money before and couldn’t face the humiliation of doing it again,” he said.
So, like millions of Americans do every year, he left the traditional banking system and turned to moneylenders payday to borrow $ 730 in two separate loans. Interest rates were high – in the case of one of them, of 266% – and you were unable to repay the loans on your next payday, two weeks later, as required. In 4 months, I owed $ 960 for those $ 730 initials.
For people like Juliette, who need money instantly for an emergency, lenders Payday have long been among the few options available. They are ubiquitous in the United States, there were about 10, 730 locations in 2018, many in low-income and African-American communities. Although 18 States and Washington DC there are strict interest rate caps on payday loans , in others, some lenders charge annual interest rates that exceed the 600%.
But rooted of the COVID pandemic – 19 and the inequalities it exposed and exacerbated, there is a renewed focus on the need to counter payday lenders by providing better and fairer banking services (personal loans, but also mortgages and small business loans), primarily for low-income individuals, who have long had difficulty accessing them.
The federal government, as well as corporations and at least one reputable philanthropist are injecting money into Community Development Financial Institutions (CDFI), providers of financial services whose mission is to provide financial services to low-income communities and members of rural, urban and Aboriginal communities – places that many traditional banks have largely excluded. The innovative infusion of money equates to an investment of billions of dollars.
At the same time, some retail banks and credit unions are launching or expanding programs that provide small, low-cost loans to their customers. And some independent nonprofit organizations are increasing their efforts to help people escape the crippling debt of payday loans, and avoid the toxic impact of predatory loans.
That’s what Missy Juliette finally did; sought the services of Exodus Lending , a Minnesota nonprofit dedicated to helping people get out of payday loan debt. They paid the $ 960 he owed, and instead offered him a refinance program at no charge and with 0% interest.
After paying her debt, Juliette stayed connected with the organization; She even shared her story at a fundraising event and was eventually invited to join the board of directors. Exodus Lending is evaluating the possibility of applying for certification as a CDFI; meanwhile, the nonprofit applied for a technical assistance grant to CDFI earlier this year.
Here are some of the ways that federal financial assistance and other types of financial assistance will change the landscape of options for people who need to borrow, and tips on how to find a loan. resource in the community for affordable financial aid.
CDFIs get a big boost
In a perhaps unprecedented change, the Consolidated Appropriations Law of 2021, designed to provide financial relief during the pandemic, provided $ 3 billion specifically for the CDFI Fund, which provides financial assistance to CDFIs and Minority Deposit Institutions (MDI). That amount almost equals what the fund has received in total since its inception, at 1994. “There’s a lot of public investment in mission-driven institutions,” says Betty J. Rudolph, national director of minority and community development banking for the Federal Deposit Insurance Corporation.
Stimulated by calculation national racial composition of 2020, CDFIs and MDIs (institutions that are often also CDFIs, but predominantly serve communities minority and minority-led ones) have also attracted hundreds of millions of dollars from some of the nation’s largest financial and technology companies. That includes Google ($ 180 million ), to Bank of America ($ 180 million), to PayPal ($ 135 million) and to Twitter ($ 100 millions). In late 2020, philanthropist MacKenzie Scott made public her donation of more than $ 4.1 billion to 384 organizations, particularly those that operate in communities with “low access to philanthropic capital”, 32 of which are CDFIs.
The influx of funds means that CDFIs will be able to reach more clients and offer them assistance. “We are focused on positioning them to take advantage of these new resources to build and grow, to better serve their clients and generate wealth in their communities,” says Rudolph.
In mid-June, the Department of Treasury awarded $ 1. 25 billion in funds to 863 CDFI; . credit unions.
From Capital Good Fund, a Rhode Island CDFI, they claim that this will have a transformative impact on their ability to provide unsecured personal loans and other types of loans to their clients. Unlike banks, which, according to Capital Good Fund founder and CEO Andy Posner, analyze pay stubs, credit reports, and forms To determine a loan applicant’s eligibility, Capital Good assesses bank history, considers letters from family or friends, and makes concessions to immigrants who may receive cash . The entire process can be done through a smartphone in approximately minutes, and decisions are made within a maximum period of two days. CDFI Small Amount Loans have an APR of 5%, with no application, origination, closing or late fees.
In April, the CDFI Fund opened applications for its new Small Dollar program Loan (SDL), designed to compete with payday lenders. Depending on the schedule, up to $ 13. 5 million to CDFI certified to create loans for a maximum of $ 2, 500, which will be reimbursed in installments, and payments will be reported to at least one credit reporting agency. The program aims to provide opportunities to those who do not use banking services or hardly use them and who traditionally do not have access to the conventional financial system.
Other possibilities are expanded
CDFIs are not the only media that offer alternatives to payday loans. In October, America’s second-largest banks, Bank of America, introduced a short-term cash loan program called “Balance Assist.” Bank customers who have had checking accounts for at least one year can borrow up to $ 500 (in increments of $ 100) for a flat fee of $ 5, and must repay the advance in 3 equal monthly installments, within 90 days.
In a press release, Bank of America rated the program as a “low-cost means for clients to manage their short-term liquidity needs” that is designed “to improve their financial lives.”
Almost a third of CDFIs are credit unions: Member-owned non-profit financial cooperatives that generally offer the same services as retail banks. CDFIs that are credit unions may also offer an alternative to payday loans, called a “Payday Alternative Loan” (PAL). These loans are open to people who have been members of the credit union for at least one month; Applicants pay an application fee of up to $ 20 to borrow between $ 200 and $ 1, 000 for 1 to 6 months at an interest rate that does not exceed 28%. “With more funding, the agency could increase the number of credit unions that receive grants, and increase the amount of grants it awards, which would deepen the impact of the program in communities with little access,” said the president of the National Credit Union Administration, Todd M. Harper, in an NCUA press release this June.
Another option on the rise is nonprofits, like the one Missy Juliette turned to in Minnesota.
“They consolidated my loan payments into one,” Juliette says, “so instead of paying $ 200 and fees every month, I paid $ 80 per month for one year ”. In 2019, the nonprofit began reporting its clients’ term payments to credit reporting agencies. At Exodus, Juliette improved her credit score and contacted credit counseling, learning how to create a budget and identify a student loan repayment plan that was best for her.
In April , when Juliette had to replace the brakes and a gasket on the Chrysler 300 C of 2008 I had just purchased in February, repair invoice for $ 600 was daunting, but manageable, because Exodus had helped her create an emergency fund for such purposes .
Discover payday loan options
Although CDFIs welcome customers who have poor or limited credit history, some may require you to have a bank account with them as a prerequisite for a loan. Therefore, it is reasonable to establish a relationship with a CDFI — or, if not, a credit union — before you have to borrow. Joining a CDFI can be affordable. Many offer free or low-cost banking services, with an initial deposit of just $ 25.
Here’s how to find out your options:
Identify CDFIs near you. The Community Development Financial Institutions Fund has a FAQ page Links to certified CDFIs, and includes information on how to get a loan.
Find and join a credit union. Even if you have a traditional bank account elsewhere, being a member of a credit union has its advantages. These nonprofits may charge lower bank fees and offer higher interest rates on savings. Some credit unions are linked to labor or professional organizations; others allow you to join by paying a small start-up fee. The Royal Credit Union recently received $ 1.8 million from the Rapid Response Program for CDFI. Residents of Minnesota or Wisconsin can join the credit union with a $ 5 donation to the RCU foundation and a $ 5 deposit to open a savings account. Use the directory of credit unions of the National Credit Union Administration to find one that fulfills the functions you want and demands the membership requirements
Whether you use a CDFI or a credit union, look for one with a program that addresses your specific concern. The fact that these institutions are strictly local means that they often focus on meeting the needs of their community. In North Carolina, for example, the Latino Community Credit Union offers immigration assistance loans of up to $ 15, 000 to an individual for any type of expense related to immigration. BlueHub Capital, a Boston CDFI, has a loan program for homeowners facing foreclosure. He buys the house and resells it to homeowners with mortgages they can afford.
Find non-profit organizations with financial aid programs. Charities across the country offer everything from food assistance to help paying for utilities. Modest Needs awards free “Self-Sufficiency Grants” by matching applicants with donors. Groups such as Catholic Charities and Lutheran Services in America provide a wide range of assistance programs, regardless of your religious affiliation.
Know the laws. The interest rate payday lenders may charge varies from state to state. Although all lenders are legally required to disclose all fees and interest rates, they can be confusing. USA.gov has a directory of State Consumer Protection Offices where you can search by state, where you can Get help if you have a problem with a lender. The Washington State Department of Financial Institutions, for example, has a website and toll-free number where consumers can verify authorized lenders and learn about the rights and responsibilities of borrowers.
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2021, Consumer Reports, Inc.
Consumer Reports has no financial relationship with the advertisers on this site. Consumer Reports is an independent nonprofit organization that works with consumers to create a just, safe, and healthy world. CR does not endorse products or services and does not accept advertising. Copyright © 2021, Consumer Reports, Inc.