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Grant County organizations create loan program to replace emergency payday loans

Ella Abbott

Two organizations are teaming up to offer small loans to residents of Grant County, in an effort to discourage the reliance on high-interest payday loans. The “Bridge the Gap” loan program aims to create better financial literacy and help residents lift themselves out of poverty.

Grant County has the third highest poverty rate in Indiana, at 16% in 2019, according to the U.S. Census. Afena Credit Union, based in Grant County, has developed a program to try to reduce this percentage.

Experts say payday loan storefronts and the cycle of debt can add to wealth disparity, especially for communities of color.

Marion is the county seat of Grant County and is nearly 15% African American, according to the 2019 U.S. Census.

Afena CEO Karen Madrey said high-interest emergency loans can lead to a cycle of borrowing and paying back.

“When you’re in a very poor community, it makes the people in the community a little more vulnerable,” Madrey said. “And we know there are lenders attacking each other.”

Madrey said one of his goals is to ensure that the credit union is focused on providing equitable financial services to financially vulnerable or marginalized people.

The “Bridge the Gap” program offers members immediate access to small loans from $500 to $2,500 with interest rates as low as 4.25%, unlike payday loans where the average interest rate is almost 400%.

Dawn Brown is the CEO of the Grant County Community Foundation. Almost three years ago, the foundation embarked on a new strategic plan. One of the elements was to launch an impact investing strategy in which foundations take a portion of their endowment and invest it in programs that can have an impact on the community.

In this case, the foundation took a million dollars and invested it in the Bridge the Gap loan program.

Brown said it was over lunch where she and Madrey made the decision to try and partner up. Afena had been approved as a Community Development Financial Institution, or CDFI, which meant it could provide loans to families who otherwise could not get them.

“I brought him to my board when COVID happened because I knew then that these families were in even more dire straits than before,” Brown said.

But payday loans created a cycle of debt long before the pandemic began. Yasmin Farahi is senior policy adviser at the Center for Responsible Lending, or CRL. She said there were 262 payday loan storefronts in Indiana alone.

“It’s a major problem in Indiana, draining more than $300 million from working Hoosier families over five years,” Farahi said.

CRL’s mission is to ensure a fair and inclusive marketplace for all creditworthy borrowers. Farahi advises organizations and legislators working to eliminate abusive lending practices.

Farahi said the one-time emergency loan is a myth.

“They rely on people having more than 10 loans a year, unable to meet the conditions and eventually being unable to escape the cycle of debt,” Farahi said.

Sherry Dixon is the lead ambassador for the Bridge the Gap program. Her job is to go out into the community and tell people about the program and encourage them to apply for a loan if they need it.

She said the position gives her the opportunity to get out into the community and help people without feeling judged for their credit score or budget.

“I’m actually here to offer advice on how to improve your credit report, advice on how to start making a monthly budget,” Dixon said.

As of March 1, nearly 80 loans have been issued, lending more than $170,000 to members with an average credit score of 414 – including 21 participants with a zero credit score.

Madrey said she wants the credit union to teach people how to manage their finances and help them achieve their financial goals.

All loan officers are certified financial advisors. Each person who receives a loan will also benefit from personalized and free financial coaching.

“One of the reasons I’m so passionate about this is that nobody ever told me,” Madrey said. “I learned by making mistakes.”

As members repay their loans, the money goes into a separate savings account to help them build an emergency fund.

Dixon said people have been very receptive and grateful for the program.

“I know we’re not supposed to hug, you know social distancing,” Dixon said. “I got hugs from new members, I got tears from new members. I just got happy remarks.

Talking to anyone about Afena or the Community Foundation, it’s clear that the program is first and foremost about the people they can help.

Brown said that while there is always a return on the Community Foundation’s investment, through members paying interest, that’s not the only outcome they seek with the program.

“But, the main reason we would be able to do that is because of the social feedback,” Brown said.

Madrey said the program is designed to help people get back on their feet once they return to work. In order to receive the loan, members must have a source of income, which they can show with two pay stubs.

“It’s to help bridge any gap they have due to being COVID-free,” Madrey said.

Monthly payments can be as low as $35 and members are encouraged to make weekly payments of $10 to ensure they always pay on time. The focus is on low-income families with an income of 200 percent or less of the federal poverty guidelines.

While other programs have experienced dropouts due to COVID-19, the Bridge the Gap program has been pushed forward by this one.

“It kind of pushed to the fore once we started seeing some of these true stories that our families were going through,” Brown said. “And we wanted to see what we could do to give them some relief, some stability, and maybe just some hope.”

With an investment of $1 million over five years, Madrey said she hopes to see her community’s poverty rate drop.

As the Bridge the Gap Loan seeks to end the loan cycle in Grant County, Fahari said there are organizations and lawmakers working to end it at the state level.

“There is a way to stop this,” Farahi said. “So 17 states plus DC have stopped predatory payday lending with a rate cap of about 36 percent.”

A bill at the Indiana Statehouse has been making its way through the legislature since 2018. Farahi said passing these rate caps is the most effective way to end cycles of payday loan debt.