Payday Loan Alternatives Becoming More Widely Available

Payday Loan Alternatives Becoming More Widely Available

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In the winter of 2016, Missy Juliette, now 36 and of St. Paul, Minn., had to choose between paying the rent and settling overdue heating and electric bills. Her credit cards were maxed out, and her wages were being garnished for back taxes. Getting a small loan from a bank wasn’t an option, nor was borrowing from family. “I’d asked them for money before and couldn’t face the humiliation of it,” she says.

So, as millions of Americans do every year, she went outside the traditional banking system, turning to payday lenders to borrow $730 in two separate loans. The interest rates were high-with one at 266 percent-and she was unable to pay the loans off by her next payday in two weeks, as required. In four months she owed $960 on that initial $730.

For people like Juliette who need emergency money quickly, payday lenders have long been among the few available options. They are payday loans Dublin Ohio ubiquitous in the U.S., with an estimated 13,700 storefronts in 2018, many in low-income and Black communities. Although 18 states and Washington, D.C., have strong interest rate caps on payday lending, in others some lenders charge annual interest rates that surpass 600 percent.

But in the wake of the COVID-19 pandemic and the inequalities it exposed and exacerbated, there is a renewed focus on the need to counter payday lenders by bringing better, fairer banking services-personal loans, but also mortgages and small business loans-to the primarily low-income people who have long had difficulty accessing them.

The federal government as well as corporations and at least one bold name philanthropist are injecting money into Community Development Financial Institutions (CDFIs), financial service providers whose mission is to bring financial services to low-income communities and people within rural, urban, and Native communities-the places many traditional banks have largely excluded. The game-changing infusion amounts to billions of dollars’ worth of investment.

At the same time, some retail banks and credit unions are launching or broadening programs that extend small low-cost loans to their customers. And some independent nonprofits are amplifying their efforts to help people escape from crippling payday loan debt and avoid the toxic impact of predatory lending.

That’s what Missy Juliette eventually did, seeking out the services of Exodus Lending, a Minnesota nonprofit dedicated to helping people get out of payday loan debt. They paid off the $960 she owed, offering her a no-fee, 0 percent interest refinance program instead.

Payday Loan Alternatives Becoming More Widely Available

After paying off her debt, Juliette stayed connected to the organization, even sharing her story at a fundraiser and eventually being invited to join the board of directors. Exodus Lending is weighing whether to apply for CDFI certification; meanwhile, the nonprofit did apply for a CDFI technical assistance grant earlier this year.

Here are some of the ways the federal and other funding assistance will be changing the landscape of options for people who need to borrow, and advice about how to find a community resource for affordable financial help.

CDFIs Get a Big Boost

In perhaps the most unprecedented shift, the Consolidated Appropriations Act of 2021, designed to provide financial relief during the pandemic, included $3 billion specifically for the CDFI Fund, which provides financial assistance to CDFIs and Minority Deposit Institutions (MDIs). That amount almost equals what the fund has received in total since its inception in 1994. “There’s a lot of public investment in mission-driven institutions,” says Betty J. Rudolph, the Federal Deposit Insurance Corporation’s national director of minority and community development banking.

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