Quick Fix Loans
Local organizations work together to combat high-interest loans targeting low-income residents.
Sierra Williams, a single mom in the Columbia area, took out her first high-interest loan after her income tax refund was seized by the IRS following a miscommunication with her student loan provider. Sierra had been recently laid off from her job at Student Transportation of America and was in the middle of a move; she was counting on her refund to finance moving expenses.
“I had my back up against the wall and had no other options. I’m a parent, and I have bills and other needs. I just resorted to getting a payday loan when I needed it,” Sierra says.
But Sierra’s loan was financed with an interest rate of 179.93%, making it impossible for her to stay up-to-date on her payments. “I felt like I was drowning, like I would never get out of this,” she says.
High-interest loans often come in the form of payday loans, which are created on an unsecured, no collateral basis. These loans let borrowers leave the loan office with cash advances, as do title loans, which allow borrowers to make cash advances against their car title. But these loans often come with extremely high interest rates, kicking off a cycle of debt that can be catastrophic for one’s personal finances.
High-Interest, High-Concern
Eric Morrison, senior vice president and Columbia market president of Providence Bank, says it’s difficult for borrowers to pay off high-interest loans because they often result in layering multiple loans on top of each other in order to make payments.
“You get into a vicious cycle,” First State Community Bank President Joe Miller says.
Joe has seen interest rates as high as 1,300%, and even with lower rates, borrowers usually pay at least twice the amount they originally borrowed.
According to Consumer Federation of America’s payday loan consumer information, Missouri is one of 32 states that legally authorizes high-cost payday lending with largely unregulated interest rates. There are restrictions on payday loans that limit the amount borrowed to $500 with a 14- to 31-day loan term.
“The problem with that is the amount of interest being charged on those loans is extraordinary,” Joe says. Someone could take out $100 and have a payoff amount of $200 the next week.
Funding a Solution
Providence Bank, First State Community Bank, and five other local banks have partnered with Love INC to help Columbia residents struggling to pay off their high-interest loans.
Jane Williams, co-founder and program director of Love INC, describes Love INC as a place for people to be matched with resources.
“We network resources and relationships to love our neighbors forward. We strive to serve the whole person and involve the whole community. We believe everything to help our neighbors is right here in our hearts and homes,” Jane says.
One of their resources is the Extra Mile Program, a budgeting program that matches participants with a coach that guides them through how to budget expenses.
Extra Mile Program Coordinator Kelli Van Doren begins the program by interviewing coaches and participants. Anyone that pays their bills qualifies to be a coach, Kelli says. Some coaches like to create spreadsheets for their participants to keep track of budgeting, while others like to keep it old-school with paper and pencils. Kelli explains that by having a wide variety of coaching styles, they can better match them to participants.
Because of grant restrictions, participants in the programs must fall within a certain income range. For an income to be at 100% of the poverty level, a family of four must be making about $25,100. With the Extra Mile program, Love INC can serve people up to 250% of the poverty level, which translates to an average household income of $62,750 for a family of four. The average income of clients at Love INC is $22,000. Participants must also have some sort of ongoing income to budget to be enrolled in the program. Kelli says most of their participants are employed, but some are retired or on disability assistance.
Once both coaches and participants have interviewed with Kelli and coaches have undergone training, the coaches and participants are matched primarily based on their schedules and personalities. They then select meeting times and locations on their own and begin meeting once a week for 16 weeks. Over this time period, participants learn basic budgeting skills and have one-on-one personal guidance from their coaches.
After completing four weeks of the program, participants have the option to apply for an Extra Mile loan to help pay off their high-interest loans. These interest-free $1,000 loans are offered to participants through the generosity and determination of local banks, including Providence Bank and First State Community Bank.
Since 2018, Joe has worked as a facilitator to contact other local banks about creating a fund for the Extra Mile’s loan program.
“The bank culture in Columbia has always been a good culture. We are all engaged with a lot of not-for-profit organizations in town, and this one particularly struck home for me,” Joe says.
The first reception fundraiser in 2018 raised $15,000 for the loan fund, and a second round of fundraising in the spring of 2019 raised another $10,000 to $12,000.
“We’ve raised this fund through the generosity of the banks in town,” Joe says.
A Social Issue
Sierra, after turning to her payday loan as a last resort, was referred to Love INC to get help figuring out how to make ends meet. Once enrolled in the Extra Mile program, she learned about their interest-free loan, and after completing her first four weeks, she was able to pay off her $1,343 loan debt.
Kelli explains that for every week a participant completes, they receive a $20 gift card. At weeks eight and 16, participants also earn $100 via check to be used towards bills or debts. Sometimes, if a participant’s payoff amount is slightly over the $1,000 loan, Love INC will provide the participants with their rewards early to help them pay off the loan in its entirety.
Since being matched with her coach, Rita Bond, Sierra has been on the fast-track to budgeting her finances.
“There are situations that I was shy in, and these two [Rita and Kelli] went in and grabbed the bull by the horns. There’s times when I wasn’t assertive enough to make a phone call, and they spoke up for me,” Sierra says.
Rita says Sierra isn’t the first person to come to Love INC struggling to pay their high-interest loans; two out of three people she has coached have had payday loans.
These high-interest loan companies tend to pop up in low-income neighborhoods in Columbia. “They typically locate near neighborhoods where people are going to be struggling to make ends meet,” Jane says.
Since many banks require a certain credit score or minimum amount for lending, it’s difficult for low-income citizens to obtain a short-term, unsecured loan from a bank. This leads to last resort, high-interest loans from companies that take advantage of the situation.
“They know they’re lending to high-risk people. And because they know some people won’t pay them back, they justify the high interest rates for everybody. That’s how they stay in business,” says Jane.
Banking as a Tool
Even though banks may not be able to lend to all people stuck in high-interest loan situations, they are still a resource that can be utilized.
Kelli explains that Love INC is a “big friend of banks” and helps participants set up relationships with local banks. Many people can save money by having their paycheck deposited into a bank account rather than using a prepaid card for their paycheck, she says.
At First State Community Bank, they also offer a junior savers program for kids under age 18. These younger customers can open a savings account and get paid for good grades. Joe says that budgeting and learning to save money are primary ways to have good financial health, and that starts early.
“People can have very good jobs and still struggle financially. It comes down to budgeting and understanding what needs and wants are,” Joe says.
As local banks and Love INC continue to grow their partnership in an effort to combat the struggles that high-interest loans are creating, all Columbia residents can contribute to the program. Love INC is always looking for more coaches for the Extra Mile program, and as Jane says, just being aware of the situation and advocating against such high-interest rates can make a big difference in the community.
“We would like to see legislative change to curb the interest rates. Telling the story will raise awareness, so there will be more public will to accomplish that,” says Jane.