A Grace Period for people in need

Jesse James DeConto reports for The Christian Century on an alternative to the predatory credit of payday loans:

As former Pittsburgh cop Tony Wiles knows, people who need money fast are vulnerable.

“I grew up in the inner city, so I’ve seen it all,” he said. “Loan sharks, pawnshops and payday loan companies on every corner.”

Wiles hadn’t considered doing anything about the issue until Rock Dillaman, his pastor at Allegheny Center Alliance Church, preached a sermon on justice. The pastor planted a seed that led Wiles to develop a low-cost payday lender called Grace Period.

Great name. But how does this work? Is this just a slightly cheaper alternative to traditional payday lenders?

That, in itself, would be a commendable effort. Payday lenders are everywhere in America because poor households often need short-term access to credit to cover the kind of emergency expenses that might scarcely register for a wealthy family. Banks, S&Ls and credit unions could be providing that service, but they’re no longer interested in the modest profit margins of such modest loans. Why do all the hard work of handling thousands of tiny transactions for marginal profits when you can just invest in the latest Wall Street roulette scheme?

So payday lending has become the province of vampires. According to the Center for Responsible Lending, there are more than 22,000 storefront payday-lending operations in America doing $27 billion in annual loan volume. About three-fourths of that lending is from “churning” — rolling over existing short-term loans to keep borrowers on the hook. Such “churning” can result in astronomical effective interest rates, as the CRL explains:

If a typical payday loan of $325 is flipped eight times, the borrower will owe $468 in interest; to fully repay the loan and principal, the borrower will need to pay $793.

Payday lenders also collect $3.5 billion in fees every year. That’s a $3,500,000,000 redistribution of wealth from the poor to the greedy rich.

These predators thrive because their customers have no choice. They need this money — just these relatively small amounts, like that $325 loan — and they have nowhere else to turn.

So the idea of Grace Period is to give them somewhere else to turn — somewhere they can get the emergency credit they need without being sucked dry by fees and without falling down the hole of “churning” loans for which the interest exceeds the principle.

That’s why, as DeConto reports, “Grace Period offers free loans for clients who repay them within 13 days.” But it also “requires a long-term savings program so clients can meet their emergency needs in the future.”

This savings program gets a bit complicated, and I’m not sure what the program is measuring when it reports on the effectiveness of its attempts to “encourage personal financial reform,” but Grace Period counts some 3,000 borrowers who have begun to save.

And, in 2010, it provided $1.5 million in emergency lending to people who desperately needed it. As Grace Period’s CEO, Dan Krebs, says: “We’re keeping people from going to places that are really going to take advantage of them.”

The program doesn’t turn a profit, but it pays for itself — for the seven employees who process these loans and payments:

The founders of Grace Period aim to show that the model is sustainable. “Unless it’s self-supporting, nobody’s going to duplicate it,” said Krebs.

Grace Period presented its model at the past two conferences of the Christian Community Development Association, and the agency is encouraging alternative payday lending, which is taking root across the country. The founders of Just Money Advisors, a nonprofit financial planner with clients in 25 states, are working to open another Grace Period in Louisville, Kentucky.

So, yes, this can be self-supporting. And, yes, it can be duplicated. And, yes, other church groups and altruistic people are duplicating it.

But if it’s self-supporting and replicable, then it doesn’t just have to be church groups and altruists doing this sort of thing as charity. Cities, counties and states could duplicate this model as well. Keeping the needy from being preyed on by vampires isn’t just a matter of charity. It’s also, as Pastor Dillaman said, a matter of justice.

  • Sgt. Pepper’s Bleeding Heart

    where is that in the Constitution?

    Who cares? We both said “role of government”. Small g, no definite article beforehand, international term.

    If you reckon your constitution requires a particularly narrow type of government, I don’t care. The role of the US Government specifically is a particular version or subset of the role of government generally. The role of my government is to facilitate bringing about ends that matter to the people. What the hell is yours for?

  • Guest

    My husband works for a payday loan company (corporate office), and while I’m not going to justify what they do, I’d like to point out that those predatory lending rates aren’t *only* there because the corporate owners are mustache-twirlingly evil. 20% of all their loans never make a single payment. In other words, they take the money and run. And while they will eventually sell that loan to a collection agency, they don’t go after the loan recipient very hard. (Though they don’t get to make additional loans from that company either). Another percent makes some of their payments before stopping.

    Another thing to note is that not making those loan payments, or making only some, will not ruin your credit. It doesn’t go down on your credit report (which for most people is already terrible anyway). But paying the loan off will improve your credit.

    That said, this company is seeing record profits (so much so I told my husband they must be secretly laundering heroin money), and I would love to see competition that really helps people. I hope this Grace Period lending works out, and I hope they don’t have to can it because 1/5 of their loans go into default (though there is the possibility that a lot of people don’t bother to pay their loan back at the predatory lenders *because* the interest rate is obscene).

    This company used to be more conscientious and not quite so profit-driven as its been lately. They weren’t so quick on the fees, or as aggressive about their loans. They were a lot more, “If you really need emergency cash and can’t get it another way, then maybe consider us. But only after you’ve tried everything else first,” than they are now. The culture is starting to drive employees away (including my husband, who’s been talking a lot lately about leaving).

  • http://twitter.com/lesterhalfjr Chris Hadrick

    guest- yes, the risks to lending to people with bad credit are high.  Alot of them have bad credit for a reason and often it’s their own fault.  Sometimes it’s not of course.

    ellie- prohibiting payday lending is a fantasy. They’ll go to loan sharks.

    How about we ban stripping so all those women can get less awful jobs? What’ll happen is many of them will go into prostitution.  two adults agree on a loan contract, that’s all there is to it. two consenting adults.

    Your scenerio is a great argument for what this article is about: eliminating usury or whatever you want to call it, high interest, from loans to the poor. You and I both agree the program described in the article is good.

    I simply added that I liked it because it was a free market approach. If this program spreads and works Payday lending will die on the vine of it’s own lack of utility. 

    sgt peppers- that’s your definition of  “government”.  I just read the wiki definition of government and it says it’s role is to arbitrate conflicts and enforce laws.  That’s closer to mine.

  • EllieMurasaki

    How about we ban stripping so all those women can get less awful jobs?
    What’ll happen is many of them will go into prostitution.  two adults
    agree on a loan contract, that’s all there is to it. two consenting
    adults.

    There is nothing wrong with sex work, of any flavor, whether stripping or sex for money, provided action is taken to ensure the safety and health of the sex workers. Banning any flavor of sex work makes things more dangerous for the sex workers.

    Your scenerio is a great argument for what this article is about:
    eliminating usury or whatever you want to call it, high interest, from
    loans to the poor. You and I both agree the program described in the
    article is good.

    Yes! Exactly! This is why there should be regulation banning the charging of more than 50% APR, preferably banning the charging of more than 35% APR! Glad you agree with me. Now go harass your congresscritters about that.

  • Sgt. Pepper’s Bleeding Heart

    sgt peppers- that’s your definition of “government”. I just read the wiki definition of government and it says it’s role is to arbitrate conflicts and enforce laws. That’s closer to mine.

    You’re pulling wikipedia on me as your source of authority? The validity of the opinion of some Wikipedia editor, or some libertarian on slacktivist, as to what government is for is no more legitimate than mine.

  • http://twitter.com/lesterhalfjr Chris Hadrick

    elli- no I totally disagree. if the church alternative loan program catches on, the Payday loans will be obsolete.  until then there is still a need for them.

    sgt peppers= well if you are going to get that far into it there is no actual definition of anything. I would say you are confusing society and culture with government.  

  • DavidCheatham

    The way it used to work: We would put our money in banks, and they would lend that money out to others, paying us interest for that, and collecting somewhat more interest on the loan. (Which was only fair, as there was more risk there.)

    But at this point, they barely lend out money at all, and the money they lend out is money they got straight  from the Fed, at very low interest rates. Holding our money serves no benefit to them. (As evidenced by them constantly attempting to tack on fees and whatnot.) At this point, actual banking customers are just a hassle that requires them to deal with people, and the industry is operating basically on momentum at this point.

    The entire premise of ‘banks’ is almost meaningless at this point.

    There are, of course, credit unions…if you can find one.

    Why the government cannot provide a ‘Here is a place to put your money’ service, I do not know.

  • Lori

     

    I don’t  want a scaled up version. I don’t want big business or the govt
    involved.  I like the program as is.  it doesn’t need ANYTHING. 

    So you think an organization with 7 employees is all we need? Even for you that’s pretty WTH? If you’re thinking that there should be little 7 person operations all over the country then you’re still delusional. It would take thousands and thousands of them to meet all the demand and that’s not going to happen. 

  • Lori

     

    I simply added that I liked it because it was a free market approach. 

    Your definition of “free market” seems to be “anything not done by the government. This is not accurate. Words mean things and that’s not what “free market” means.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Another thing to note is that not making those loan payments, or making
    only some, will not ruin your credit. It doesn’t go down on your credit
    report (which for most people is already terrible anyway). But paying
    the loan off will improve your credit.

    How can it improve credit at all if the loans are kept “off the books” as far as credit reporting goes anyway?

    You claim to be an expert on the industry down to quoting that 20% interest equates approximately to a 20% loss ratio, yet you state a contradiction not a couple sentences later. Actually I suspect the real loss ratio is lower and your husband’s agency is an atypical situation, exacerbated by the recession to begin with.

  • Anonymous

    It is glaringly obvious that this article does not tell the whole story.  Unless Grace Period is printing money in the basement or accepting grants from outside sources, it is financially impossible to lend at no cost, pay 7 employees, and break even.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Well, shucky darn and slop the chickens *claps hands to side of face* You’re positively scintillating! Why, you might win a nobel prize next!

    Gosh, could it maybe just possibly be that the founding church put up the capital and some of the operating expenses from donations provided by churchgoers?

  • http://twitter.com/lesterhalfjr Chris Hadrick

    Lori- If it’s a good idea it will spread in due time. If not, having our government do it won’t make it so.

    neutrino- indeed. I know what Mr or Ms Anonymous is saying but they’re missing the point.  

  • Lori

     

    If it’s a good idea it will spread in due time.  

    Again I have to ask what planet you’re beaming in from because you do not live on the same one that I do. I realize that it is a central tenet of your worldview that good ideas will always flourish on their own because the Almighty Market, blah, blah, blah. The English have a term for that—”rubbish”. I think “bollocks” also works.

    That is simply not how the world actually works. If it was there would be far fewer computers running Microsoft and that’s just the first example that popped into my head (because I’m using a computer right now). You are obviously free to continue to favor ideology over reality, but the rest of us aren’t obliged to play along and pretend that you’re not.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Starting a business carries considerable risks. Now one could argue that that’s the capitalist way – a business survives or doesn’t based on its ability to provide a product or service to customers.

    But just facilely saying “start a business and pay people more” slides over a lot of the in-betweens from A to B.

  • http://twitter.com/lesterhalfjr Chris Hadrick

    Lori- We both acknowledge that the church run loan thing is a good idea and REALITY has acknowledged it, if you will, as it appears to be succesful.  I’m not favoring ideology over anything, I’m saying if it isn’t broke why fix it? There’s a REASON why it’s doing well and that’s because of a myriad of things that can’t likely be legistlated and needn’t be.

    Neutrino- theres nothing else that you can do though. People have to work at whatever rate someone is willing to pay them or not work. I remember a few years ago during the boom years, 60 minutes had a segment on how entitled the younger generation of employees were, how they needed constant encouragement and stuff.  I’m sure they aren’t getting any of that now because the job market makes bouncing around from job to job much much harder. Now they take what they can get.   

  • PJ Evans

    saying “start a business and pay people more”

    That’s right up there, as advice, with telling people who are unemployed to start their own businesses at home. The people who say that stuff never seem to realize that most of those one or two-person businesses fail. What they’re seeing is just the successful ones, and most of those are not making much money.

  • PJ Evans

    People have to work at whatever rate someone is willing to pay them or not work.
    That’s assuming they can even find a business willing to hire them. Whcih is not easy.
    I assume you’ve heard about the businesses that are getting about a thousand applicants for each job opening.

  • Lori

     

    We both acknowledge that the church run loan thing is a good idea and
    REALITY has acknowledged it, if you will, as it appears to be
    succesful.  I’m not favoring ideology over anything, I’m saying if it
    isn’t broke why fix it? There’s a REASON why it’s doing well and that’s
    because of a myriad of things that can’t likely be legistlated and
    needn’t be.  

    Why are you not following this discussion? It isn’t that difficult. The reality is taht Grace Period is doing well for a tiny, tiny fraction of the people who need the service. It can’t readily be scaled up and you’ve said that you don’t want it to be. The only other way to meet all the need via this kind of program, with none of the nasty government cooties you hate so much, is for there to be thousands and thousands of groups like Grace Period. That is not going to happen.

    Grace Period is not successful because of myriad things that can’t be legislated.  It’s successful because it’s not being run for profit.

  • Daughter

    Here’s a thought: government entities and NGO’s often interact. One key way they do it is that the government develops the programs and sets the standards, then issues an RFP (request for proposals) from NGO’s who believe they can implement the program effectively. NGO’s whose proposals are approved are given funds by the government to implement the program, and must report back at certain intervals (monthly, quarterly, semi-annually or annually) on their outcomes and the progress they are making toward achieving the program’s goals.

    These allows the programs to benefit from the advantages you named for gov’t (consistent framework, etc.), while also benefitting from the assets nonprofits bring to the program, such as close connections with the community. Many, many gov’t programs you could name–Head Start and WIC, for instance–are actually carried out by nonprofit community based organizations.

  • Daughter

    prediction: if this idea spreads, which I hope it does, the primary opponents of it will not be from payday lenders but the state. the Payday guys will lose money, but the state will lose POWER. When people see how good the church is at running something they will want it to run other things. The government won’t like that.

    That makes no sense. The state is all of us–we the people, and all that. Not to mention, as I’ve already noted, the state often partners with nonprofit organizations, including churches (provided their services are non-sectarian), to carry out many worthwhile ventures. And in many cases when the gov’t partners with NGOs and churches, it wants to do so for a limited time period, after which the NGO or church will sustain the program on their own. Thus, the state is not the power-mad entity you seem to believe it is.

    And finally, ” When people see how good the church is at running something they will want it to run other things. ” Huh? Churches already run things that help people–sometimes very effectively, sometimes not so much.  There hasn’t been some general outcry by the public at large that many current government functions should be turned over to churches. And most churches wouldn’t want that to be the case–most don’t have the capacity to take on more community programs than whatever they are currently doing.

  • http://twitter.com/lesterhalfjr Chris Hadrick

    PJ- no she was talking about wages of people who already have  jobs.

    Lori- “It can’t readily be scaled up and you’ve said that you don’t want it to be. The only other way to meet all the need via this kind of program, with none of the nasty
     government cooties you hate so much, is for there to be thousands and thousands of groups like Grace Period. That is not going to happen. ”

    Why not?  A journey of whatever begins with one step.

    daughter – “The state is all of us–we the people, and all that”

    The state is made up of various people, some elected and some not. They have their own interests. if you’re lucky they coincide with yours. point is It’s a form of government, it’s “the man”. It’s at best a part of the nation not the whole of it. We aren’t the police, they are guys who do that job. same with DC.

  • Daughter

    Chris, you really didn’t address the points I made. I only wrote my “we the people” comment because you talk about “the state” as if it’s some freakish entity with its own conscience, and not “various people, some elected [by whom? We the people!] and some not,” as you put it.

    But my points are: 1) government can and does share power; and 2) I don’t think this program, no matter how successful, will create a drive by average Americans to turn all sorts of services over to churches, for the reasons I’ve already stated.
     

  • Daughter

    In fact, the second recommendation of the President’s [note: President as in Obama] Advisory Council on Financial Capability is “Align with, consolidate and boost, rather than
    supplant, existing efforts of the private, for-profit, non-profit, and
    governmental sectors.
    There are countless
    extraordinary efforts underway, many of which need help achieving better
    awareness and broader distribution.” (Emphasis in the original).

    http://www.treasury.gov/resource-center/financial-education/Documents/Principles_for_Recommendations.pdf

  • Daughter

    Just to clarify, the President’s Advisory Council on Financial Capability is the federal government’s initiative to support and strengthen programs such as Grace Period. And they specifically say that they are there to boost, not supplant, efforts made outside of governmental purview. They are definitely willing to share power.

  • http://twitter.com/lesterhalfjr Chris Hadrick

    The State, at it’s root, is simply people who have been selected, either by us or by people elected by us, to do various jobs.  Even if we are very happy with their services they aren’t “us”. Us is the nation, it’s customs and characteristics.  You could have a nation without a government (conceivably) but you could not have a state without people to govern.

    As for the state helping with this program, I believe in seperation of church and state :)

  • http://thatbeerguy.blogspot.com Chris Doggett

    20% of all their loans never make a single payment. In other words, they take the money and run…
    That said, this company is seeing record profits

    I’m sorry, but if 20% of borrowers never repay anything, and you’re seeing record profits, that suggests there’s some real mustache-twirling going on across the board. It means you’re leaving out some pretty significant details to bridge the gap between those two points.

    It doesn’t go down on your credit report (which for most people is already terrible anyway). But paying the loan off will improve your credit.

    …actually, one of those statements must be false. Either it will improve your credit, because it is reported to the credit bureaus, or it won’t go on your credit report, because it’s not reported. 

    For those not in the know, many payday loans are categorized as “secured” loans, in which the borrower gives the lender something of collateral value against the note; in the case of payday loans, what’s being given is a postdated check for the amount of the loan plus fees/interest. Now, if that post-dated check doesn’t clear (because there’s not enough money in the bank two weeks later) then the lender can pursue collections and the borrower gets hit from his bank with an overdraft fee. If the borrower has some sort of “overdraft protection” on his bank account (don’t get me started…) then the payday lender gets paid, and the borrower now owes even more money (loan, interest, plus overdraft fees, etc.) to their bank. 

  • Monala

    So basically, you’re against state involvement in anything that helps people, since you oppose the state offering this type of program on its own, and you also oppose the state partnering with churches and nonprofits to do it. Have I got that right?

    So just say that you’re opposed to the state helping people on ideological grounds, rather than giving easily disprovable reasons (e.g., churches always do it better, people are clamoring for churches to take over government functions) for why the state isn’t up up to the task.

  • PJ Evans

    no she was talking about wages of people who already have  jobs.

    Which and who? If you can’t do any better at replying than that, you aren’t even trying.

  • http://twitter.com/lesterhalfjr Chris Hadrick

    PJ- she was talking about wage rates and so forth and I said if you don’t think peolpe are  getting paid enough start a business and pay them more. it wasn’t a example for reducing unemployement, it was about low wages.

    Monala- I don’t think the government and churches should work together.  Is that a conservative sentiment?

  • http://www.seebs.net/log/ Seebs

     Laws can be changed, but until they are changed, they can’t adapt to circumstances. They can’t respond to each thing in a way reflecting that thing’s unique circumstances.

    Thing is… I don’t think lack of judgement is a good thing. It may be less bad than corrupt judgement, but any fixed set of rules will fail in a number of cases. Decisions made by people who care and can take more things into account are generally better. Yes, that also opens the door to failure. Free will is like that in general; if you have choices, that implies the possibility of bad choices.

    But having watched people become homeless because the Law specified a weekly rate at which benefits could be paid, and that did not allow paying enough money to avoid eviction, and having watched people go off their antipsychotic meds because the Law said that they had to restart the entire application procedure if someone lost their paperwork…

    You cannot create morality through law.


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