MEMPHIS, Tenn. – Tens of millions of people continue to struggle as the pandemic spreads and many 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 buries debtors in a cycle that some cannot escape.
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There are plenty of options for those looking for quick cash, and it doesn’t take much to get a payday loan – usually all you need is a photo ID, security number. social security and proof of income.
Yet interest rates create a vicious circle that is difficult to break out of. However, some groups are working to help people do just that.
With an annual interest rate as high as 459%, a loan of $ 200 could end up costing over $ 900.
“For me, that’s the definition of a predator. They win when you lose, ”said Andy Posner, founder and CEO of Capital Good Fund, a nonprofit community development financial institution certified by the US Treasury.
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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 Chattanooga-based independent urban policy research firm Metro Ideas Project.
There are more than 230 payday lenders in Shelby County, according to the firm, nearly double the 109 in Davidson County.
“For them to take advantage of it, you don’t have to be able to pay the loan as agreed in the contract,” Posner said in an interview with Zoom. “The only way the lender can make money is if the borrower is worse off at the end of the loan than at the start of the loan. “
Tens of thousands of people in Memphis are using payday loans. According to the Metro Ideas Project, the people 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 Pew Charitable Trusts.
In addition to the sky-high interest rates, Posner said this amounts to unfairness.
“All of this contributes to what many people call a poverty tax, so black, brown, indigenous and low-income communities pay more for things that others don’t. “
This is why Posner started the Capital Good Fund.
“I decided to create an organization that would offer alternatives focusing on marginalized communities and it has grown since then,” 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 U.S. Treasury, according to its website.
“A lot of people go there on a day-to-day basis, and they don’t look for the long term,” said April Branch, manager of the company’s Ridgeway branch in Memphis.
“A lot of people are stuck in the payday loan cycle, and they feel like they can never get out of it,” Branch said.
Hope Credit Union loans are meant to help people rebuild their credit and save money, the key to breaking the cycle of poverty in many communities “compared to payday loans, where they’ll just try to get you a loan. another loan just to cover that loan, ”Branche said.
When asked by a reporter why it would be important to free black people from this cycle, Branch, who is black, said building generational wealth was 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 recalled 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.
“I’m trying to break that cycle and get them out of that and see the big picture. … A lot of people assume they have $ 5 (and) that’s not enough to save, but you have to start somewhere.
“If you get into the habit of starting out, it will help encourage you to save for the future. So when you run into issues related to these emergencies, you can set aside some savings that you can use instead of leaving. payday loans.
A statement was issued 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 Tennessee consumers,” according to a spokesperson. word.
“The mission of the regulated consumer financial services industry is to ensure that all consumers have access to transparent and cost-effective 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 the inclusion and financial stability, ”the statement read. .
Cox Media Group