Home Texas Payday Lending Editorial: Taking a bigger bite out of payday lending

Editorial: Taking a bigger bite out of payday lending

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“Payday lenders say they provide a service to people who need quick money. What they don’t say is that paying 400 percent interest on loans that roll over and pile up debt at the speed of light is anything but a service.

One year into its existence, the Community Loan Center of Dallas is showing success as an innovative employer-based alternative to payday lenders and their high-interest rate and fees. And now a hefty $1.5 million grant from JP Morgan Chase will assist the center in dramatically expanding help to borrowers who are unable to qualify for traditional loans.

CLC and programs like it are important affordable options for small-dollar borrowers. Once in their clutches, payday lenders make it almost impossible for struggling borrowers to get back on their feet. Their business model depends on those borrowers being unable to repay loans in a timely fashion. That’s bad news if you are living from paycheck to paycheck. The cycle of debt multiplies week to week, making a bad situation worse.

CLC is one of several embryonic, experimental programs in Texas and beyond aimed at combatting abusive payday lending. It’s especially promising because it partners in an unusual way with employers.

Here’s how this program works. Your car needs a new radiator, but you don’t have the money. If you are enrolled with CLC through your participating employer, you would be able to borrow up to $1,000 from the center. You’ll have one year to repay the loan, which is capped at an 18 percent interest rate. Even at that rate, this is a much more affordable and safer deal than going to a payday lender. Plus, CLC allows loan installment payments to be taken directly from your paycheck, much like health care premiums, child support or United Way contributions.

The concept started four years ago in Brownsville and expanded to North Texas last year when the city of Dallas signed on as a major employer partner. Since then, CLC has made 1,263 loans totaling $1.2 million to local borrowers. JP Morgan’s grant doubles the center’s lending capacity and allows it to add several new employers.

Long term, CLC’s success depends on its ability to recruit employers and financial backers willing to sponsor the small-loan program as part of employee benefit packages. Employers, especially those with many workers of modest means, would be wise to consider this program. All employers have to do is verify employment and help with payroll deduction paperwork.”

Read more at: Dallas News

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