Ballot issue questions if "payday lenders" hurt or benefit low-income communities

Payroll Lending Ballot Question
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October 14, 2020 - 9:22pm

Are payday lenders offering a service to low-income customers or profiting when people find themselves in a financial bind? When you vote this year, one of the ballot questions seeks to limit the fees charged on delayed deposit transactions.

You have likely seen one of the 65 payday loan operations in Nebraska, generally located in lower-income neighborhoods. The official name of their primary product is a delayed deposit transaction. When a customer is short on cash, they bring them a check. 



Alisha Herndon of Hometown Cash Advance 


Hometown Cash Advance in North Platte, Nebraska (Photos: Bill Kelly/NET News)

"My best example for that is you blow a tire on Tuesday, you don't get paid until Friday," offers Alisha Herndon, the assistant manager at Hometown Cash Advance in North Platte, by way of an explanation.

"We'll borrow you the money for a small fee. Our fee is $17 and 65 cents. On Friday, when you get paid, you bring us back in the money you borrowed plus our fee, and we give you your check back."

Last year, more than 50 thousand customers in Nebraska made about 500 thousand delayed deposit transactions. That works out to roughly ten payday loans per customer per year.

The question on the ballot this year asks if the fees for those loans should be capped at 36 percent. (Legally, these transactions are not a loan, but even those in the industry casually use the term.)

NET News talked to two Nebraskans who've taken out these types of cash advances. 

They are casting two different votes on this issue. 

In North Platte, Michele McVay is a hospital cook. She reluctantly took out a loan when she and her husband relocated to North Platte, and they were both without work. 

"I don't like to borrow money, and I won't borrow from family," she explained, but I didn't have an option."

They found a place to live but had little cash on hand for household expenses. "It just all adds up fast," she discovered. "We needed to have a way to pay for stuff right away so we could move into a house," believing the payday lender "was my best option."

She went to Hometown Cash Advance and took out the largest loan possible: 425 dollars plus the 75 dollar fee. Even though she had to return to repeat the loan and the fee over three or four weeks, she has no regrets now that McVay paid off the obligation, and her account is clear.

"For me, it was better than bouncing a check," McVay said," because the bank charges me $25 to bounce a check."

In Gretna, restaurant worker Phil Davis remembers a much different and much darker experience when he borrowed using a delayed paycheck when he and his wife faced the pain of a thin bank balance in December 2010. They were a young family short on cash.

"We had a three-year-old, and we couldn't bring ourselves to tell the three-year-old Santa Claus doesn't have money to come this year." 

When arranging to get the money, she recalls hearing about the $75 fee on top of the $425 transaction.  

"That's kind of steep," he remembers thinking, "but do what you got to do for your three-year-old, right?"



Online calculator to figure fees for a delayed deposit provider.

Typical small claims filing against customer who failed to make payment.


 


After 30 days, Davis wasn't able to get the cash to pay off the obligation, so he re-applied and was charged another 75 dollar fee. In just a week, the lender earned a 150 dollar gain off of a single repeat customer. 

"We were in this vicious circle for almost three years," Davis said, continuing to pay the fee to re-apply to avoid defaulting on the transaction he hoped would clear up his money woes.

Finally, he saw an opportunity when he got a refund on his taxes and finally got even and finished his obligation to the delayed deposit company.

"But in that three and a half years, it was over $5,800 in fees," he told NET News, still sounding amazed at the figure, rooted in the original attempt to get $425 in extra spending money.

That sort of vicious cycle prompted a coalition of advocacy groups to launch the petition drive that got the payday lending issue on the ballot. Currently, the fees are the equivalent of a 405 percent annual loan rate. Approving the ballot initiative would limit that rate to 36 percent.

"I think Nebraska voters, in general, understand that 400% interest rates are just too high," said Audrey Mancuso, the executive director of Voices for Children in Nebraska, one of the groups campaigning for lower fees. She estimates customers using delayed deposit would save 20 million dollars in fees alone.

"The entire profitability of their business model is designed around people taking back the loans, taking out the loans again and again and kind of not being able to pay them back.

For those frequent return customers, that works out to forking over six thousand dollars in fees over a year-time. Father Damian Zuerlein of Saint Francis Cabrini in Omaha watched over the years as some parishioners struggled with the burden of debt brought on by borrowing from what some call "predatory lenders."

He told NET News," from a Christian perspective, to take a high-interest rate was seen as theft. So you're, taking somebody who's in a crisis situation, and you're using their crisis as a way to benefit financially from their pain."

Herndon, with the family-owned Hometown Cash Advance, dismissed the criticism and said, "people are misinformed."

Rather than being a predator, Herndon emphatically believes she's offering a service.

"If we were making billions, we sure wouldn't be on the north side of North Platte, Nebraska, as they call it, the slum part, which is why we started here." 

Her mother started the business, McVay said, "because we wanted to help the people of a lower income to help them get out of the hole."

If Hometown Cash takes a customer to court, the most she can claim is the original 500 dollar transaction plus a small fine. They've only pursued seven cases this year. It's a locally owned business. The customer base is reliable. A search of court records revealed only a couple dozen instances when the company took a customer to court for non-payment.

She boasts her customers are so loyal and the word-of-mouth so good, "I haven't advertised in 11 years."

Most of Hometown's competitors in Nebraska are large national chains owned by out-of-state corporations. 

National advocates for the short-term loan industry claim higher fees and rates are a necessary part of the business. Unlike banks that require credit background checks, payday loan providers argue they take more significant risks. 

If voters choose to limit fees on the transactions, Herndon and her mother say there's only one option left. 

"We will close our doors," she told a visitor, her voice becoming soft and quiet.

The family doesn't see how the business can profit when the proposed charge amounts to a dollar and 38 cents per transaction.

"You would have to have a huge customer base in order to, for instance, pay your light bill," she said. "If my light bill is $266 (and the fees are capped) at $1.38, how many customers is it going to take me to get there?"

Borrowers McVay and Davis illustrate the two sides of the issue.

McVay believes the payday lenders provide an essential service that needs to be protected. She disagrees with the ballot initiative.

"I'm actually going to vote no because I do not think it's appropriate. I think it's been blown out of proportion." She said her experience has been excellent and possible because of her personal relationship with the family owners.

"I'm honest with them, and they're honest with me, and that's what I appreciate."

Phil Davis and his family returned to good financial health, but he's still stinging from his bad payday loan experience. He concedes he shares the blame for getting in over his head, but believes limiting the fees serves a greater good.

"They are there for a purpose and they help people," he says, "but with the way they run their business, the poor get poor, while the rich get richer."

Davis will vote in favor of the change in state law. 

There are some powerful forces lined up against them. Before the petition drive even began, a half-million-dollar out-of-state campaign donation arrived from the Washington based Sixteen Thirty Fund, a liberal group back by anonymous donors.

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