Families! Saving for college: WGDechert@GMail.com & Freedom loans to rescue borrowers from pay-day loans & community garden

Families!  saving for college:  WGDechert@GMail.com

&

a ministry to rescue borrowers from payday lenderswww.FreedomLoans.org.  Part of our program is for a Freedom Loans Guide to take each Borrower, one on one, through our financial literacy program.  While their immediate need is to get out of the payday loan trap, we then have several months to work with them on budgeting and future financial planning.  I am interested to learn more about your program, to see if it would be helpful to include that information in our curriculum.     Pam Umstead, Director, Pam@FreedomLoans.org; Cell: 804-514-7145; Fax:  830-631-8045

Nonprofit aims to help low-income residents break the cycle of debt By Erin Green Staff Writer erin.green@dailytimes.com 

A single mother. Two kids.

They need to be fed and clothed. They need diapers, they need medicine when they’re sick.

The mother has a job. It doesn’t pay much, but she’s scraping by. Money is always tight.

Then her older-model car — her only means of transportation and something she absolutely must have for her job — breaks down.

It’s going to cost $400 to fix.

Payday at her job is a week away, and she needs that money to pay her rent and her electricity.

She goes to a payday loan office and gets the money she needs to fix her car.

The direct deposit from her job comes, and she pays her bills. She cannot possibly just pay off the loan entirely, so she makes her minimum payment — a finance charge and interest on the loan.

The loan rolls over, essentially to a new loan, with another finance charge and interest. The interest rate is more than 500 percent.

The single mother is stuck in a vicious cycle of debt, unable to work her way out and finding herself in increasingly tougher financial conditions thanks to those payments.

She’s in what some might call a “debt snowball.”

The problem then becomes how to extricate herself from under the the debt.

‘A DEATH SPIRAL OF DEBT’

Pastor John Standridge of Christ Church is familiar with the problem from those he counsels in the community. While he has heard from those in difficult situations, he also has noticed the sheer number of payday loan offices in Kerrville — 18 to be exact.

“They’re caught in a situation where emergencies come up, and they have to deal with them,” he said. “There’s a little too much month left at the end of the money.”

One day, during lunch with fellow pastor David Danielson of Impact Christian Fellowship, a discussion sprang up. They agreed there was a need in the community.

“He got to talking pretty passionately about payday loans and how something needed to be done,” Danielson said.

Their discussions on how to break the cycle of poverty lead to Freedom Loans, a group focused on helping people get out from under such loans.

THE PROBLEM

The problem when a borrower takes out a loan he cannot immediately pay off in its entirety with the next paycheck is the fees and interest, according to Jeff Anderson, a pastor on the Freedom Loans team.

“It could be worth the cost if someone can pay it off quickly, but it adds up,” Anderson said.

The issue is the payday loan places operate not as a direct lender, but as a third-party lender, guaranteeing the loan on behalf of the borrower but going through another company to actually borrow the money.

“The payday lenders qualify under a statute that is confusing for those who look into it,” Anderson said. “By not being direct lenders, the laws give them a lot of leeway to charge whatever they want. They operate outside of the usury law.”

Usury laws govern the amount of interest that can be charged on a loan. According to the Texas Attorney General’s website, commercial loans are authorized by Chapter 306 of the Texas Finance Code and cannot bear more than 18 percent interest annually, although with inflation that may be increased to 24 percent.

Payday loan companies get around this by not lending directly. The third party, which actually lends the money, complies with usury laws, usually lending at about 10 or 15 percent interest. The payday loan companies, which guarantee the loan, can charge 300, 400 or even as much as 600 percent interest, plus finance fees. Laws in Texas have no limit on the ultimate cost.

“What may have started out as a $500 or a $600 loan rapidly becomes $1,000, and there’s no repayment of principal occurring,” Anderson said. “That $160 a month minimum payment is going just to interest.”

A SOLUTION

A local nonprofit, SERV Kerrville, is a servant ministry seeking to rescue borrowers trapped in a continuing cycle of payday loan payments.

SERV Kerrville’s solution, Freedom Loans, formed in 2015 and began assisting Kerrville residents in March, Anderson said.

“Our ministry looks for gaps of need in the community,” Anderson said. “It’s life circumstances that lead these borrowers to do what they do.”

It’s often those same circumstances — tight finances, difficulty balancing priorities, lack of financial know-how, unforeseen happenings — that lead people to seek out such loans, according to Pam Umstead, team director of Freedom Loans.

But helping such people get out from under the cycle of debt is what Pam Umstead wants to do. Along with Jeff Anderson and her husband, David Umstead and with the assistance of Broadway Bank, they formed Freedom Loans, which offers qualified borrowers a low-interest, 12-month loan to pay off a payday loan or loans up to $1,500. The borrower then makes payments at a reasonable interest rate over the course of a year. The borrower also is required to work with a volunteer Freedom Guide for financial education and guidance.

“The people that are being affected here are being taken advantage of by the payday loan industry,” Pam Umstead said. “They tell you right on the paperwork what the interest rate is, they have to. But the people in these situations either don’t know better or they feel they don’t have a choice.”

She said borrowers often don’t know how much such a loan is really costing them or how much it is really impacting them.

A borrower interested in a Freedom Loan can call 955-7850. The borrower fills out paperwork, then meets with Freedom Loan volunteers to get qualified for help.

Pam Umstead said the organization will look at a borrower’s finances, how much is owed, how much the person makes, whether the person can pay their bills and sustain themselves and their families on what is left and the ability of the borrower to pay off the Freedom Loan, which comes from either Broadway Bank or Kerr County Federal Credit Union.

“The bank is not risking the loss of the loan,” she said. “Freedom Loans is doing that. By doing that, the banks are helping us as they are comfortable. … What we foresee as we grow is that the program we’ve developed has lots of different ways to get plugged into the community.”

So far, the program has helped four borrowers. All four are on schedule making their loan payments and doing well with the program, Umstead said.

The program’s first loan recipient is on track with a savings account and is saving toward the purchase of a newer, less expensive vehicle for herself and her two children.

BANK PERSPECTIVE

Bob Waller of Broadway Bank said in his experience, borrowers who resort to payday or title loans often think they have no other options.

Sometimes the people have multiple loans — two or three is common, but five or six is not unheard of, he said.

“They think it’s their last resort, that they’re out of options,” he said. “They have obligations they have to take care of. They have a house payment, or rent, or insurance, or medical bills. They feel they can make the payment obligations, but they’re excessively short.”

As a banker, Waller said he often reviews checking account overdrafts to find the reason the overdraft occurred. In some cases, a payday loan payment is the reason.

“Often people would say, ‘Mr. Waller, I didn’t have another option,’” he said.

He said Broadway Bank became involved for two simple reasons: community investment and the mandatory financial education component.

“We’re doing this at a loss, but we don’t mind doing that to help the community.”

EDUCATIONAL COMPONENT

The Umsteads became interested in financial literacy through a time of financial difficulty in their own lives, Pam Umstead said.

“In our early years, we weren’t very smart financially,” she said.

When someone they worked with defaulted on an owner-financed loan, they learned for themselves how difficult it can be to dig out of a financial hole. Determined, they dug in and turned to their faith.

“We were not going to walk away from the problem,” she said. “We were going to dig our way out, so we started looking in Scripture for guidance.”

They soon found themselves with a better financial footing, but they also became passionate about helping people and began teaching financial literacy courses.

When Anderson approached the Umsteads, they were on board right away, but with a caveat, she said.

“When Jeff asked if we were willing to work on this part of the program, I fully expected the door to be shut because I said ‘I can’t teach finance without mentioning Scripture,’” Pam Umstead said.

But the SERV ministry was onboard, as well, and Freedom Loans got off the ground. There were untold hours of meeting and planning how it would work and assembling the program for the financial education portion.

Pam Umstead said each borrower is required to meet with his or her Freedom Guide 30 minutes a week — at whatever time and day is most mutually agreeable — to work on a series of lessons, each of which is accompanied in its booklet form with an appropriate Bible verse related to finance.

The lessons include topics such as budgeting, cost of credit, telling the money where to go, shopping tips, tracking spending, negotiating and cooperating on a budget, deferred gratification. sources of extra money, sound financial planning, insurance and renting versus buying.

To learn more or to apply for a Freedom Loan, call 955-7850 or log onto www.freedomloans.org or visit www.consumerfinance.gov.

Glory Community Garden in Kerrville, TX:  http://dailytimes.com/entertainment/article_cdfb2b8e-60d9-11e6-8d9f-dbd0112c5c13.html or ask Monique.Brand@DailyTimes.com for 8-13-’16 article with photo or ask the church for information or a copy of the newspaper article:  830-257-5365.

other prospective, collaborative partners:

LFielder@CollegeForward.org

Families saving for college:  WGDechert@GMail.com  with Home Depot connections  looking for 501c3 start-up board members. 

Ashley Treat:  ATreat@TexansCan.org  development director with a last-resort, charter high school

LeroyNellis@ICloud.com works with children of incarcerated parents.  former Travis County budget director

Brent Elyea, MBA, Merrill Lynch in Austin; USMC; literacy & veterans’ non-profit endowment Brent.Elyea@ML.com through Carolyn Appleton

 

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