Friday, December 30, 2011

My innovative Service Project Idea

I sent this to my network of contacts on Dec. 30.

Hi Friend, 

Hope your holidays were delightful and solvent.

My request. I have several innovative financial education/dialogue ideas that I'd like to refine. I am reaching out to my network to share my ideas and help me connect to people who help fund or host a pilot test of the innovation. There is a lot that can be done, so if you have the inclination you can also partner with me to launch the project.

Background. Thanks to Gary Rivlin's Broke, USA I am getting the specifics on legit "industries" that prey on our poorest citizens. It has reminded me of what anyone with attentive eyes can see: many poor neighborhoods though lacking in legit banks have an abundance of check cashers, pay-day loan storefronts, pawn shops and rent-to-own stores. Wasn't always the case, but is the current situation. Dig a bit, and many of these stores or predatory mortgage lending companies are owned outright or financed by the largest banks in the nation—Wells Fargo, Citibank, Fleet, Bank of America, and, before it's demise, Washington Mutual. For shame.

Many people use a payday loan company once and feel so uncomfortable that they got themselves in such a bind or felt a need for fast money that they don't do it again. That's not who the payday loan companies make their money on. As with any business, these companies make their money off repeat customers. Multiple times a year repeat customers.
Customers who don't pay the loan when it falls due pay a fee to keep the loan in play, but that fee isn't applied to the principal, it just stretches the due day another spell, usually 2 weeks, sometimes a month. One man began with $800 loan and paid rollover fees regularly on Tuesday for 10 years! His account rep showed him his total fees, over $9,000!

The companies like that their regulars pay and pay, upwards of 545% annual rate or more. But customers are shielded from this harsh fact most of the time, though you can find signs with this rate posted in the lobby or on the wall of many of these companies' storefront locations. Payday joints encourage customers to think they are paying fees, not interest. But many don't really seem to care, they just feel an urgent need for cash. One said a payday loan was better than crack!


Right now, in King County, there are 50,000 no-account adults. These adults do not have an account at either a bank or credit union. Banks, and also credit unions, experience a conflict of profits. Though they could promote programs to help their customers decrease overdrafts and encourage the proper use of regular accounts, their overdraft fees or competitive payday loan products bring in more money!

Service action. Of course, there are many ways one could address this: direct action such as protests at the stores may actually backfire because many customers say they like the stores. Political activism?? Pshaw! The legislature is made up of people from the comfortable classes. They know little about payday loans, have the state's own debts to sort, and are the targets of intense lobbying whenever these laws come forward. The predatory lending companies were able to defeat an effort a few years ago to cap interest rates in Washington.

So, what's left? A person always has authority for themselves. That autonomy can be awakened and supported to take responsible actions. It can always be asserted at any time. 

I want to nudge customers of these predatory lending practices to start thinking about their personal authority/autonomy over their spending and saving. And begin taking small, personal action steps to get out of their debt traps.
 
Email me to see more details and schedule a time to talk more about it.

I'll blog on this idea as I learn more and matters progress at ktc-sfc.blogspot.com

Happy holidays and much luck & prosperity in 2012.

John

Sunday, December 11, 2011

Payday Loans

12/12/2011

Thanks to Gary Rivlin's Broke, USA I am getting the specifics on "industries" that prey on our poorest citizens. It has reminded me of what anyone with attentive eyes can see: poor neighborhoods are lacking in legit banks but have an abundance of check cashers, pay-day loan storefronts, pawn shops and rent-to-own stores. Wasn't always the case, but is the current situation.

Of course, there are many ways to begin to address this.

Direct action against the companies in terms of protests, etc. might backfire because the research I've found says their customers actually like the stores. Customers like the convenient hours, open early before work, open late after work. Friday night, driving in Lynnwood, Washington I counted two open at 8:45 PM.

Customers say they like that in less than half and hour you can walk out with cash.

Customers say they like knowing what they have to pay and when it's due.

This isn't a time to rile the customers up to defend the "financial services" industry!

Well ok, that's out, what about political activism? The legislature is made up of people from the comfortable classes. They know little about payday loans or the type of binds less well-off people find themselves. They get donations and intense lobbying from the financial services sector. Besides, they have a huge state debt to work their way out of.

So, what's left? A person always has authority for themselves. It's not always active before they take out that first loan, but it can always be asserted at any time. Many people use a payday loan company once and feel so uncomfortable that they got themselves in such a bind or felt a need for fast money that they don't do it again.

That's not who the payday loan companies make their money on. As with any business, these companies make their money off repeat customers. Multiple times a year repeat customers.

The companies like that their regulars pay and pay, upwards of 545% annual rate. But customers are shielded from this harsh fact most of the time, though you can find signs with this rate posted in the lobby or on the wall of many of them. Customers think they are paying fees, not interest. Customers pay a fee to keep the loan in play, but that fee isn't applied to the principal, just stretches the due day another spell, usually 2 weeks, sometimes a month. One can keep doing this while trying to scrap together the full loan to repay. And keep doing it. The fees keep rolling in. One man began with $800 loan and paid fees regularly on Tuesday for 10 years! His account rep showed him his total fees, over $10,000! And he had a mortgage-free home. What's up with this?

I want to nudge regular users to begin thinking about their personal authority over their spending and saving.

More in later posts.