Reasonable Loans Help Move Families Forward
This blog post is a follow-up to a post I first wrote two years ago. I want to keep you apprised of our work that provides alternative loans to families that would otherwise turn to toxic lending operations.
I still don’t care for payday lenders, as you can tell through my tone in my September 2016 blog post. However, my rhetoric has softened (just a little), and I’ve focused my attention on the lack of short-term credit options in America.
When it comes down to it, if a bank charged me 2.49%, which is what I pay on my car loan, for a $500 short-term loan, they couldn’t make enough interest to cover their expenses and overhead. Payday lenders, who charge APRs of 200% upwards of $1,000%, set rates that allow them to absorb the risk of giving out loans with virtually no screening, and anticipating a high charge-off rate.
As we’ve reported to you, we built an alternative lending program in 2014 with Holy Rosary Credit Union. We lessen the credit union’s exposure by mitigating losses through a loan loss pool of funds (funded through philanthropy), providing education through our Financial Coaches, providing wrap-around supports to make sure loans are repaid on time, and using grants, contracts, and philanthropy to lessen overhead, including staff salaries and office equipment.
The grand opening of our new Hawthorne Place Apartments micro-branch
Here are our updated statistics as of June 30, 2018:
Total loans made - $537,000
Number of loans – 190
Default percentage – 8.4%
Micro-branches opened – two (CSL-Noland Road office and CSL-Hawthorne Place Apartments office; the picture is the grand opening of our new Hawthorne Place Apartments micro-branch)
Full-time loan officer – one
Existing APR of borrowers seeking toxic loan refinancing – 275%
Average interest rate we lend at – 14%
On average, for every one loan we close, we open two or three banking products like savings accounts, credit-builder debit cards, direct deposit, etc., which further connects those that might have been previously unbanked to traditional banking and credit services.
Thanks to a lead gift from the Rotary Club of Independence, and additional support from the Heartland Credit Union Charitable Foundation and the Catholic Dioceses of Kansas City-St. Joseph Life & Justice Campaign, we opened a new Holy Rosary Credit Union branch inside the CSL office at Hawthorne Place Apartments in November 2017. In the first six months of 2018, we've closed as many loans as we did all of 2017. Our new branch is giving us capacity to reach more families that need our credit union services.
In the small-dollar loan industry, a lot of innovation is occurring. With technology advancements, mobile apps and websites are connecting borrowers to lenders, which is a blessing and a curse. Traditional payday lenders are branching out of their retail stores and developing a huge online presence, which I don’t care for. Nonprofits and other tech start-ups are reaching folks with reasonable lending offers. The latter is exciting, but people must be made aware of such services.
Our biggest ongoing challenge is competing with the speed of payday lenders. They advertise guaranteed approval in 15 minutes. We can sometimes turn around loans in 24-48 hours, but that’s often too slow for an emergency, so we have to continue to innovate our product.
You might be asking how you help? Do you know someone caught in a toxic debt trap? Have them call our micro-branch at CSL’s Noland Road office at (816) 777-5402, and speak with Pat Henshaw. Pat is also available over email at pat.henshaw@holyrosarycu.org.
Personally, my wife, Katie and I value what our loans (home and car) can do for low-income, low credit score families. We moved our loans over to Holy Rosary because by having more “traditional” loans on their books, they have more money to lend through our small-dollar lending program. If you’re interested in helping support the small-dollar loan program by moving your loans to Holy Rosary, feel free to reach me at cowand@cslcares.org. CSL is extremely committed to this work, as it addresses a root cause of poverty – inability to access reasonably-priced credit. We’re exploring several options to grow and expand our capacity. Stay tuned for continued updates, and thanks for your support!
