Earlier this month, the Consumer Financial Protection Bureau proposed rules on the massive payday loan industry.
CFPB wants to force lenders to test borrowers’ ability to actually pay back loans and limit re-borrowing which creates a spiral of debt and exorbitant fees.Both supporters and critics of the rule agree that it will probably force many payday lenders to close – ending 400 percent annual interest rates and immoral price-gouging.But while lenders might go away the need for small-dollar loans won’t.
Consider this incredible – and depressing – statistic: According to a Federal Reserve survey 47 percent of Americans would struggle to come up with $400 in the event of an emergency.
Stagnant wages – high medical costs and soaring inequality have increased financial stress on a large subset of American families.
And while we must reverse that it won’t disappear in the near future.
So the question becomes: if CFPB curtails predatory payday lending what will spring up in its place?
Some experts fear the industry will just slide into high-cost installment loans with little difference for consumers.
Others believe thinning out the payday herd (there are more payday loan storefronts than McDonald’s and Starbucks in America combined) will increase per-store sales and maybe bring down prices.
Still others pine for credit unions or payday lenders or even the post office to step in and provide more affordable products.
But there’s another option active in Oakland.
At the infamous Fruitvale Station – the mass transit plaza where police tragically killed Oscar Grant on New Year’s Eve 2008 – the non-profit Community Check Cashing offers borrowers with credit scores under 650 small-dollar loans and financial services at a fraction of the normal cost.
It costs $15 to cash a $500 check at a typical check-cashing store.
Community Check Cashing charges $6.25.
On an initial $300 payday loan they charge $23 as opposed to $45 from the big boys.
A one-year installment loan can be had for one-fifth the going rate.
Community Check Cashing can do this because as a non-profit they only need to be self-sustaining.
One little storefront in Oakland cannot change the world.
Or maybe it can.
With enough funding a non-profit foothold in the small-dollar loan market can ease the burden of perpetual debt on vulnerable communities.
(ed:..what a good idea..!..eh..?..not-for-profit small-loan providers to drive the loanshark-bastards out of business..and to provide real help to the poorest/most-exploited..
…what is not to love about that..?..)