Program helps those indebted to payday lenders
By Enedelia J. Obregón
The Society of St. Vincent de Paul (SVdP), Diocesan Council of Austin has launched a pilot program to help those crushed by debt from payday loan companies.
The Predatory Loan Conversion Program pilot starts in February within five parishes in the diocese and is limited to those whose loans are $500 or less, said Stacy Ehrlich, executive director of the SVdP Diocesan Council.
The program was formed at the urging of Bishop Joe Vásquez, who is concerned that payday loans and auto title loans, which are most often used by those who do not have access to credit, are hurting families.
About 70 percent of the payday loans issued in Texas are for $500 or less, said Amelia Erickson, associate director of development for the council.
The average payday loan in Texas is taken out for $300 but requires $840 to be repaid, a staggering fact that caused Bishop Vásquez to advocate on this issue before the Austin City Council and in the Texas Legislature to close loopholes in laws that allow these predatory lending practices.
Most loans are very short-term –– two to four weeks in length. But aside from the interest rates, there are finance charges and origination fees tacked on. Those who can’t pay the original loan and origination fee, interest and other charges by the end of the loan terms will then have the loan rolled over, meaning that a new loan with more finance charges and origination fees will be generated. When that happens multiple times, people begin suffocating under the weight of what was originally a small loan.
Bishop Vásquez said in the Bishop’s Interview of the May 2013 Catholic Spirit that regulation is needed because the exploitation of the poor is only getting worse. A proliferation of payday and auto title lending storefronts have flooded shopping centers and neighborhoods and we are bombarded by the radio and television commercials that promise “easy” and “same-day” cash to entice desperate families in need of help to pay for medical emergencies, groceries, rent or utilities.
“Instead of the promise of easy short-term loans, however, financially vulnerable families get trapped in a continuous cycle of debt, fees and interest from which they cannot escape,” the bishop said.
Barbara Budde, the diocesan director of Social Concerns, said predatory lending has trapped too many families and individuals in a bitter cycle of debt that can crush hope and the human spirit.
“I know Bishop Vásquez is anxious to see alternatives to predatory lending available to the community like this program from the Society of St. Vincent de Paul,” she said.
Under the program, those predatory loans will not be paid off by the SVdP but will instead be converted into a share-secured credit union loan at under 5 percent APR. SVdP is not the lender, they are the guarantor of the loans: they are raising funds to serve as collateral. Part of that money that will fund the Loan Conversion Program comes from a two-year, $30,000 grant from the Texas Financial Education Endowment - a Texas legislative initiative. The Society has already raised $13,500 in seed money donated by SVdP groups to cover start-up costs. .
Ehrlich said the society’s goal is to raise $176,000 over the next two years for initial loan funds. The funds donated will exist in perpetuity: the same $500 will be loaned repeatedly, therefore helping numerous families. As the loans are repaid and additional donations are received for the program, the program can be expanded. Erickson said $176,000 would allow the Society to co-sign and manage more than 700 loans over two years.
Under the program, people wanting to have their predatory loans converted must have a Social Security Number (originally required by payday lenders and the U.S.A. PATRIOT Act to open an account at any financial institution) and their loan balance must be 100 percent or more of the original loan. They must also be sponsored by a SVdP conference at the parish level. Repayment terms with a converted loan will be within 6 to 12 months.
“Six months is the minimum time required to build good credit,” Ehrlich said. “We want to help people build good credit.”
Clients must also attend a 90-minute financial literacy class and make a written commitment to not take out an additional predatory loan.
Vincentians, as SVdP volunteers are known, provide emergency food, transportation and financial assistance to anyone –– Catholic or not –– within their parish boundaries. There are 40 conferences –– as each parish group is called –– within the Diocese of Austin.
Converting payday loans –– a huge source of pressure –– can be better stewardship of funds than SVdP repeatedly paying rent.
Erickson said predatory lending is a $3 billion a year industry in Texas. People who use payday and auto title loan companies often do not qualify for credit at a bank and must resort to such lenders.
Jennifer Carr Allmon is associate director of the Texas Catholic Conference, the public policy voice for the bishops of Texas. She is one of a handful of TCC staff who spend each legislative session advocating for life issues, including predatory lending.
Allmon noted that the payday and auto title lending industry spent millions on more than 30 full-time lobbyists during the 2013 legislative session.
She said major predatory lenders have sued cities who adopted anti-predatory lending ordinances and during the 2013 legislative session tried to pass a bill that would pre-empt those ordinances.
“They didn’t succeed, but we expect them to try again in the next session,” she said.
In between sessions, Allmon said, industry lawyers spend a lot of time looking for loopholes in city ordinances and state laws. Thus, many payday and auto title lenders are moving outside city limits where loans were originated. Those loans are then transferred from a lender in the city to one outside city limits and extra fees are added.
Allmon said the TCC staff will be crisscrossing the state before the next legislative session in 2015 to work with Texas bishops and other diocesan staff to educate the public on the issue and encouraging people to file complaints against the lenders when abuse occurs.
To make a donation to SVdP for efforts in converting predatory loans go to www.ssvdp.org or mail a check to Society of St. Vincent de Paul, P.O. Box 9070, Austin 78766.
Complaints about payday and auto title lenders can be submitted at www.consumerfinance.gov/complaint/.