Community Foundation’s Payday Lending Alternative
In partnership with our donors, the Community Foundation approved a $25,000 grant in 2014 to pilot a lending alternative to a payday loan. The grant served as a loan loss reserve to enable the credit union to lend greater dollars without the risk of bad loans. The new product will launch this spring, with Alabama Central Credit Union serving as the loan provider, and Gateway, the oldest social service agency in Birmingham, providing financial counseling.
The Lighten Up Loan Program will offer loans between $500-1000, payable over 6-12 months to individuals with outstanding payday loans who complete a brief financial review with a Gateway credit counselor. Gateway will qualify the client based on ability to repay the loan, fill out the necessary paperwork for the client, and offer the client additional services as needed.
Over the next few weeks, community and business partners as well as area ministers will get a preview of the program, and then the program will begin with a limited number of loan candidates. This will give us opportunity to work through the program before marketing it to the public in early August, just in time for the back-to-school season.
Public Opinion Update
Neal Berte, president emeritus of Birmingham-Southern College and a member of our Board of Directors, wrote an op ed piece on payday lending, currently featured on AL.com. Community Foundation CEO Chris Nanni says, “Neal does a great job of laying out the issue and has done a tremendous job of organizing meetings with state legislators to keep the pressure on them to do the ‘right thing.’”
Dr. Berte states, “Exploiting the poor through predatory lending practices was wrong in Biblical times and it remains wrong in Alabama communities today. The effects of predatory lending rob individuals and families of the opportunity for economic viability and that hurts all of us.”
Several organizations statewide, all representing a bi-partisan commitment, have supported major changes to Alabama’s predatory lending laws. These laws permit up to 456% interest on payday loans and up to 300% on car title loans. Dr. Berte promotes a call to action, “As citizens, let’s applaud the courageous positions taken so far, and contact our legislators in the Senate and the House to stay on course and finish the job of reforming our hurtful predatory lending situation.”
The AL Supreme Court has affirmed the State Banking Department’s authority to create and mandate usage of a single source database (in order to implement an already existing law). The database is scheduled to go into effect June 15. In the past few day,s committees in both the House and Senate have approved bills that would give borrowers more time to repay loans – this would reduce the effective annual interest from 465 percent to 36 percent. We will continue to follow these bills and keep you posted.