As a financial services non-profit, it is natural for us to define our enemy–and more importantly, the enemy of the poor families we serve–as the predatory service companes that, taken together, represent a $100 billion / year industry (and growing). This industry consists of payday lenders, check cashers, pawn shops, rent-to-own stores, refund anticipation lenders, and auto title lenders. Before getting to the meat of this post, I’d like to quickly lay out why these companies are so damaging to our clients and the economy as a whole. Let’s take payday lenders, which are, according to a report by the Center for Community Economic Development (CCED), “…small, short-term, very expensive consumer loans…which [average] $375, plus the fee–which is typically in excess of 300% APR…the high fees and short-term lump-sum payment create a debt trap that causes consumer harm.” CCED found that, in 2011 alone, “The payday lending industry had a negative impact of $774 million…resulting in the estimated loss of more than 14,000 jobs. U.S. households lost an additional $169 million as a result of an increase in Chapter 13 bankruptcies…bringing the total loss to nearly $1 billion.”
I could continue to outline why the other services are equally damaging, but you get the point. Now comes the question: what to do about it? From our perspective, the answer lies in a three-pronged strategy: legislation to ban abusive practices; financial coaching to obviate the need for the services to begin with; and offering a more afordable and equitable product that out-competes what predatory companies can offer. On the legislative side, for instance, we are part of a coalition that has been trying–unsuccessfully–in Rhode Island to cap at 36% APR the interest rate that payday lenders can charge (they can currently charge up to 260% APR). Were that legislation to pass, the consumer would immediately be better protected from the most abusive practices. On the financial coaching side, we are working one-on-one with hundreds of families to help them budget and build savings so that, when emergencies arise, they don’t need a loan at all. And finally, recognizing that access to credit is essential in our economy, we offer payday loan alternatives of up to $500 at 36% APR, and loans of $501 to $2,000 at 20% APR
On paper, this approach is well and good, but in reality, those with a vested, monetary interest in the status quo tend to fight tooth-and-nail to protect their money. And this brings us to our title, girding for a fight. You see, it would be naive for us to take the traditional non-profit tack, which seems to say to the community, “We are do-gooders, here to help. Come and avail yourselves of our wonderful services!” This is silly. We are competing with companies that have dozens of branches within walking and busing distance of our clients, whose advertising and lobbying budgets dwarf ours, and whose lawyers can flex their muscle to justify practices that violete the spirit, if not the letter, of the law.
If we want to win this battle, we have to come out swinging. This means widely broadcasting the harmful effect our competitors have on the community; aggressively marketing our products and services; and delivering those products and services with outsanding customer service, lower cost and greater convenience. In other words, the payday lenders, rent-to-own stores, pawn shops, et. al of Rhode Island, be warned: we are coming for you. We are coming to take away your customers, to shame you for your usury, to advocate for laws that will impact your bottom line. If you want to stay in business, you will have to lower your prices and make your practices more transparent. Either you do that, or watch your market share and your profits erode.
Yes, we are small and they are big. We need people to donate to us for our operations and invest in our loan pool so that we can scale. But our goal is clear: to put poverty out of business in Rhode Island, and to do it with all the tools in our arsenal.
We’re ready for the fight. Are you ready to support us in battle? You can do so here.