People struggling to make ends meet will have a fairer alternative to payday loans thanks to a new partnership announced this week between the Black Clergy Collaborative of Memphis and Hope Credit Union.

The “Borrow and Save” program offers low-interest loans of up to $1,000 so residents can avoid predatory loans that often become a debt trap, said the Rev. Dr. J. Lawrence Turner, senior pastor of the Mississippi Boulevard Christian Church (Disciples of Christ), which is a collaborative member.

“Many Memphians have been forced to obtain payday loans to meet financial emergencies,” Turner said in a statement. “But relying on payday loans ends today.”

Shelby County has the highest number of predatory lenders –  232 – in the state, according to a 2017 Metro Ideas Project study. Predatory lenders include payday lenders, title pledge lenders, flexible credit and check cashers.

“We know that payday lenders put their businesses in low-income Black and brown areas because those are the people who … have that greatest need,” said Shirley Bondon, executive director of the collaborative.

However, even when controlling for income and other factors, payday loan businesses are disproportionately concentrated in Black and brown communities, according to a survey of California payday lenders, according to a 2009 Center for Responsible Lending report.

There is a need for short-term loans, Bondon said, “but the interest rates they require of our people are robbing the community of millions that could be used to improve our communities.”

The average payday loan is $375 with an interest rate of 391%, according to 2016 research from Pew Charitable Trusts. In Tennessee — the birthplace of payday lending — payday loan amounts are capped at $425 and companies can charge a maximum interest rate of nearly 460%, according to the Metro Ideas Project study.

Memphis’ high percentage of people who live below the poverty line and are also underbanked makes Memphis a key target for predatory lenders, said Latoya Brewer, Hope Credit Union’s vice president, regional branch administrator, who is helping Bondon establish the program.

In Memphis, which is two-thirds Black, just over 1 in 3 residents are either unbanked, meaning that they don’t have a bank account, or underbanked, meaning that they use financial services such as payday loans in addition to traditional banks, according to a Prosperity Now analysis of 2017 federal data.

One step in an uphill fight

For years, city and county lawmakers have grappled with the issue, and in 2009 passed a joint ordinance barring payday lenders from within 1,000 feet of homes. In September, the Memphis City Council passed a resolution asking the state to ban the businesses. Councilman Chase Carlisle, who brought the resolution, noted then that the city had limited options since the state licenses payday lenders.

State laws, which are payday lender friendly thanks to well-funded lobbying, largely preempts local government’s options, the Metro Ideas Project researchers found. However, the cities aren’t entirely without options, including three recommendations made in the report: Require storefronts to have plain-language warnings and signage, require a city permit, and support competitive alternatives.

A competitive alternative is exactly what Bondon hopes to provide as she intends to mount a fight against the companies that she says contribute to cycles of poverty.

How the program will work

Potential borrowers must apply for a referral through a coordinator at any BCCM-member church. A list of member churches will be available on the BCCM website when the program goes live.

Approved applicants have the option to borrow $500 for six months or $1,000 for 12 months, with an annual interest rate between 6% to 18%. However, while half the loan will go to the borrower right away, the other half will go into a savings account. After the loan is repaid, the borrower will have access to the other half of the loan plus any interest accumulated on the half placed in savings.

A borrower can only have one loan at a time though there is no maximum on the total number of loans someone can take out. After a borrower’s first loan, the program will require participants to take financial literacy classes with the hope of reducing their dependence on short-term loans, Bondon said.

“This is a pathway to help us help people stabilize their financial lives and help them climb the economic ladder by borrowing for their short-term needs and saving at the same time,” Brewer said.

Bondon and Brewer expect to accept applicants within six to eight weeks.

The loans will be backed by a fund created by the BCCM and matched by Hope. BCCM has already raised $10,000 to start the program, but Bondon wants to raise another $40,000.

To give their congregations access to the program, churches can become dues-paying members of the collaborative or pay $2,000 into the fund.

The Black Clergy Collaborative, founded by Turner, directed by Bondon, is made up of mainly Memphis Black churches and focused on reducing poverty. Being a person of faith is more than charity, Bondon said. It’s also about seeking justice. 

“We are responsible for one another … and this issue speaks directly to that,” Bondon said. “If we are responsible for our brothers and sisters… we cannot stand and watch as they’re being exploited by others.”

To donate or learn more about the program, email Bondon at blackclergycollaborative@gmail.com.

Carrington J. Tatum is a corps member with Report for America, a national service program that places journalists in local newsrooms. Email him at carrington.tatum@mlk50.com


This story is brought to you by MLK50: Justice Through Journalism, a nonprofit newsroom focused on poverty, power and policy in Memphis. Support independent journalism by making a tax-deductible donation today. MLK50 is also supported by these generous donors.

Got a story idea, a tip or feedback? Send an email to mlk50@mlk50.com.