Charity's Micro Loans Compete with Payday Lenders
Predatory payday lenders who take advantage of the working poor in Southern Illinois have something to worry about themselves: competition from a reputable lender. Those in need of a small loan can now turn to the Society of St. Vincent de Paul of Southern Illinois for help.
The Catholic organization decided to get involved after hearing numerous stories from local residents.
“I get calls daily from people who are in trouble with payday lenders,” said Pat Hogrebe, development director at St. Vincent de Paul. “I had a family that took out a payday loan for car repairs and had problems repaying the loan. We got involved a year later and I found that, with all of the penalties and fees, the family had paid over $1,200 and still owed the original $200. Can you imagine paying over $1,200 in interest for a $200 loan?” Hogrebe asked.
After doing some research, Hogrebe said she realized the society needed to provide an alternative lending source. She thought St. Vincent’s could raise enough money to create a micro-lending pool, but the organization needed a way to service and administer the loans. Hogrebe approached several financial institutions and found that, even though bankers acknowledged the need for a micro-lending pool and thought it was a good idea, no one wanted to take on the challenge. That was until Hogrebe met with Ken Bossung, president of Catholic and Community Credit Union.
“Since the loans are backed 100 percent by the Society of St. Vincent de Paul, we aren’t taking on any risk. This is an easy way that we can use our expertise to help an underserved part of the community,” Bossung said.
The credit union disburses the funds, collects the payments and reports loan activity to the credit bureaus, providing another benefit to borrowers who make timely payments: higher credit scores. “These borrowers need to establish a better financial foothold, and helping them raise their credit score will do that,” Bossung said.
St. Vincent de Paul and the credit union worked together to set up criteria for the loans, including a 3 percent interest rate that would be reasonable for the borrowers and still help build the fund. They also set up payments that the borrower can afford.
The loans are small, $200 to $500, and can be used for moving expenses, home and auto repairs or paying off a payday lender.
“We ensure that all borrowers are employed and that vehicles requiring repair are properly licensed, insured and are repair worthy prior to lending the funds,” Hogrebe said. “There is no need to fix a car that isn’t worth the cost of the repair or to lend to someone who can’t make payments—that’s what the predators do.”
Hogrebe said she also realized that many of the people she serves have financial problems because they do not understand basic financial management. For that reason, borrowers must take free budgeting classes offered at the Society of St. Vincent de Paul.
“By helping people learn to budget, we empower them to become independent and hopefully not get involved with predators. It also helps borrowers build self-dignity while we get repaid and empower more people,” Hogrebe said.
The partnership provides another benefit to borrowers when they complete the budgeting classes, a $25 savings account at Catholic and Community Credit Union funded by donations to St. Vincent de Paul. “That is $25 well spent,” Hogrebe said. “It provides access to financial services that many of these folks have never had and helps them to save. I know that we won’t have a 100 percent success rate, but those who do succeed will have tools for a better future.”
For more information on this partnership, call Hogrebe at 618-875-3886 or Bossung at 618-233-8073.