Kansas project helps clients escape the predatory loan cycle

Salina, Kan., Apr 17, 2017 / 04:10 pm (The Register).- In 2015, Shannon found herself swimming in debt from a title loan. She faithfully made the $200 monthly payments. Unfortunately, the entire $200 went to interest.

“I kept paying the interest on it and wasn’t getting anywhere,” she said.

None of it went to pay down the original $900 loan.

“The first time I took a loan out, I was behind on rent,” Shannon said. “Then something else came up and it got out of control. I could never see getting myself out of the hole. I thought the loan would be a burden that would be over me forever.”

The Kansas Loan Pool Project, which began in 2013, has assisted 127 people get out of predatory debt. The program is a collaboration with Sunflower Bank in which the predatory debt is refinanced into a traditional loan. In all, more than $80,000 worth of debt has been refinanced through the program.

Shannon came to Catholic Charities of Northern Kansas because she heard about the predatory debt relief program via word of mouth.

Her loan ballooned from the original $900 title loan to nearly $1,300 from the interest and service charges.

It was April 2015 when Shannon first sat in the office of Claudette Humphrey, Director of Stabilization Services at Catholic Charities. Humphrey oversees the KLPP, which helps those like Shannon who are trapped in a cycle of payday lending.

“Most people who go to a predatory lender go to pay a necessity such as rent, mortgage, a car payment or to repair a vehicle so they can continue to work,” Humphrey said.

She said payday or title loans are marketed as a one time ‘quick fix’ for people facing a cash crunch. When the client cannot pay the loan back, they ‘re-loan’ with an additional service fee. Payday loans are balloon notes, with up to 391 percent APR. Title loans are secured with the vehicle’s title, with an average interest rate of 260 percent.

Once a client completes the appropriate paperwork and is approved to participate in the Kansas Loan Pool Project, the client begins monthly coaching with KLPP staff. Each office of Catholic Charities: Hays, Salina and Manhattan, has staff to assist with predatory debt relief. The first order of business is a budget.

“For people who live paycheck to paycheck, budgeting isn’t something they’ve used previously,” Humphrey said. “They often pay the bills they can. We look at a budget to see where exactly the money is going.”

Shannon said grasping her budget was difficult in the beginning.

“When we started, I couldn’t even go out to eat with a friend, my money was so messed up,” Shannon said.

“If she went out to eat, she’d have extreme guilt,” Humphrey added. “She knew she used the money she alloted for the water bill, and now there was no way to pay the utility bill.”

Shannon filled out paperwork, including a budget, as Humphrey assisted her in paying off her original loan. The monthly payment went from $200 per month, which covered only the interest, to $88 per month. The loan was paid off in 18 months.

The process hasn’t always been easy. Figuring out her household budget took some time.

“I would come in and could only account for some of my money,” Shannon said. “(The budget) made me more aware of how much I spent on pop at the quick shop.”

With guidance from Humphrey, Shannon said she learned how to adapt her spending habits.

“She asked if I could buy a 12-pack (of pop) and keep it at my house,” Shannon said. “Before, when I would go grocery shopping, I would try to stock up for the month. Now I go once a week, and I spend less overall on groceries.”

She’s also learned to decipher between a need and a want, especially in a social situation when friends are spending money.

“I’ve learned I can go out and enjoy myself and have a glass of water, not have to have a few beers,” Shannon said.

During their monthly meeting, Shannon and Humphrey review the budget, update her employment status, and also review future goals.

“I want to get a savings account started,” Shannon said. “I would never have thought about saving because I like to spend money.”

But the meetings with Humphrey have helped her to see how saving will help prevent returning to a predatory lender.

In addition to helping Shannon get out of her predatory loan, Catholic Charities has a pilot program that grants small loans up to $1,000.

“Rather than go to a payday loan to get a battery or alternator fixed, we have started to give loans to prior clients to prevent them from getting another predatory loan,” Humphrey said. “It’s the same terms as our other loans. This is to keep people from going (to get a payday loan) in the first place.”

Shanon is one of three people in the pilot program.

“You can’t go to the bank for a $130 loan,” she said.

Shannon said the $24 monthly payment to cover the cost of a new car battery is manageable, especially since she paid off the previous payday loan.

“Because she’d been a great client and had paid her loan payments on time, came to all of her meetings and did everything we asked, she was a perfect candidate for the pilot program,” Humphrey said.

Shannon hopes she can start saving the amount she pays for the loan.

“If I save it, when the battery goes out, I’ll have (the money I need),” she said. “The (KLPP) payment was $88; that’s $1,000 a year I’d have in a savings account. That’s a lot to have in case something happens.

“Before, I would think ‘I have this extra $88, I can go out to eat or get a new pair of pants.’ I’m now more conscious about wanting to have money saved up to do things.”

Shannon has her daughter and granddaughters living with her. She said the information she learned during her sessions with Humphrey are lessons she is passing along to her family.

“My daughter is now trying to look where she wants to spend her money and thinking about saving money,” Shannon said.

Humphrey said financial acumen is something that is often learned in one’s family.

“What we know is what we pass down,” she said. “I have two of the greatest parents in the world, but we were extremely poor. They didn’t mean to not teach us, but they were too busy trying to figure out how to keep the lights on. When we went into the world, we didn’t know how to manage money.”

Seeing Shannon improve her personal situation, and help her family, is rewarding.

“She has done a wonderful job,” Humphrey said. “With the program, Shannon has developed a different way of looking at money. It’s difficult to understand how to make money work for them instead of just working for the money.”

“I tell my clients, ‘You can’t do better until you know better.’ This program is about helping people know better.”

 

This article first appeared in The Register of the Catholic Diocese of Salina and is re-printed at CNA with permission.