How a Mississippi teacher broke free from payday lenders

How a Mississippi teacher broke free from payday lenders

Jennifer Williams said working as a teacher in Cleveland, Mississippi was very rewarding, but she sometimes had trouble making her income run from paycheck to paycheck. So one day she borrowed $200, and promised to settle with the lender when she got paid shortly thereafter.

Williams soon found herself in the quagmire of a high-cost loan that was nearly impossible to get out of.

“It feels good at first, and when you get in, they’re going to do everything they can to get you in the system,” Williams told NBC News. “But it’s like quicksand: you try to get out, but you can’t.”

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The “system” that Williams is talking about is the payday lending industry, providers of short- and small-dollar loans with annual interest rates that can exceed 400 percent. Loans are typically used by workers who run out of money before their next paycheck, are easy to get, don’t require a credit check, and are offered both from storefront sites and online. According to the Consumer Financial Protection Bureau, whether the borrower can actually repay the loan is not a factor to consider.

Jennifer Williams.NBC News

Payday lenders operate across the country but are ubiquitous in Mississippi, where Williams lives. According to the state’s Department of Banking and Consumer Finance’s Consumer Division, there are nearly 800 advance/payday loans in Mississippi, more than double the nearly 300 Starbucks, McDonald’s and Burger King outlets. In the town of Williams, Cleveland, with a population of 12,000, a Google search revealed eight payday lenders versus seven banks.

But Williams finally paid off her loans with the help of a local bank that offered financial education and credit counseling workshops. That bank was Southern Bancorp, a community development financial institution based in Arkansas. Attendees of the Bank’s financial literacy workshops can take out a low-interest loan after completing coursework.

South Bancorp.NBC News

“The weekly workshops were on different financial topics, saving money and looking at your expenses,” Williams said. She finished the program, and in 2016, after six years, she finally paid off all of her payday loans.

“We take the enabling aspect of financial education in our operations very seriously,” said Darren Williams, CEO of Southern Bancorp, who is not related to Jennifer. We try to be wealth builders for everyone, especially those with low net worth. Being poor is costly – they fall into one trap after another.”

‘It’s hard to get out’

Payday lenders and prepaid companies say they provide the needed service – giving credit to borrowers who have no other access to money, sometimes referred to as “unbanked.” The American Community Financial Services Association, an industry lobby group, says 12 million American families use micro-dollar loans each year.

But many consumer advocates view payday lenders as predatory.

“They are in the places where people need help most,” said Beth Orlansky, who until recently was the advocacy director for the Mississippi Center for Justice, a nonprofit that combines political advocacy with legal services for low-income residents. “If you go to areas where you have left the industry and people are struggling, you will see nothing but payday lenders. It is very strategic.”

When advertising their products, payday lenders often target black and Latino communities, according to a study published last month by Jim Hawkins, professor at the University of Houston Law Center, and student, Tiffany Benner. The study concluded that ads work with African Americans and Latinos more likely to use high-cost credit than white customers.

In Jennifer Williams’ experience, payday lenders often made her first interest-free loan, she said, making her easier to get. And when she couldn’t pay off her initial loans, she said she went looking for other lenders.

Jennifer Williams and her son.Courtesy of Jennifer Williams

Payday loans typically run for two weeks or less and can be offered for as little as $100 up to $1,000. Research shows that while these loans are often advertised as helping borrowers weather the occasional financial crisis, clients often take out new payday loans to pay off old ones. A 2009 study by the nonprofit Center for Responsible Lending found that 76 percent of these loans go to customers who need new money to pay off an existing payday loan.

The Williams experiment also followed this pattern.

“I’d commute to work and get paid a month as a teacher,” Williams recalls. “I needed the gas money to last until the next pay period. By the end, I had about nine checks submitted from five or six locations in three different cities.”

When her first $200 loan came due, she said she went to the lender to pay it off, but ended up increasing the loan to $400, with $487.50 being paid off. If she is required to pay it off in a month, the interest rate translates to 264 percent annually.

Little do you know, once you have the money, it’s hard to get out,” Williams said. “A normal person can’t pay them.”

silent battle

Besides the six-week personal finance course that Jennifer Williams received, Southern Bancorp provides other financial outreach and advisory programs. The bank offers tips on saving for a home purchase and how to make the best use of tax refunds.

“A tax refund is often the biggest check a low-income person gets, so we encourage them to save a portion,” said Darren Williams.

Darren Williams.NBC News

Southern Bancorp’s focus is helping people of color build wealth: 80 percent of new participants in its advisory programs have been black, for example. Southern Bancorp also offers a program that matches savings for low-income clients — earmarked for home, small business, or college tuition — with federal funds of up to $2,000 per person. Among the participants in 108 such programs, 96 percent were black.

Having learned to budget and spend carefully, Jennifer Williams said she is now in a much better place.

“I just paid for my car recently, so this weight is losing me,” she said. “I pay all my bills, live comfortably, and have no financial stress. Things are really good.”

However, she said her involvement with payday lenders had a negative impact.

“that they She said, “It preys on the weak, the hopeless, and the weak.” “It was an emotionally exhausting, silent battle I was fighting.”

Nearly 20 states have enacted laws to rein in everyday lending. The most recent was Hawaii, which last year capped annual interest rates on payday loans at 36 percent and allowed borrowers to pay off early without a penalty. Prior to the law change, a borrower who took out a $300 loan for two months could pay $210 in finance charges; That fee is now $74, according to an analysis by the Pew Charitable Trusts, a nonprofit organization.

Payday lenders claim that restrictions on these loans, such as capping interest rates or imposing an outright ban on them, end up hurting consumers, as they create problems such as bank overdraft fees when checks bounce and even bankruptcy.

But Lauren Saunders, associate director of the National Center for Consumer Law, a nonprofit that advocates for consumers, said research shows borrowers find better alternatives when states rein in payday lenders.

“In places that are doing nothing to suppress it, payday lending is booming like never before,” Saunders said.

While government stimulus checks and tax credits during the Covid-19 pandemic have helped borrowers reduce their reliance on payday loans, these programs are now ending.

“Payday lending is picking up again,” Saunders said. “Unfortunately, it is very easy to take advantage of people who cannot pay their salaries.”

Meanwhile, the Consumer Financial Protection Bureau said it was following up on the lenders’ problems.

“We know that these loans can be very harmful, and we have serious and significant concerns about business models in which borrowers fail,” said Zexta Martinez, its deputy principal. “The CFPB will be vigilant and take action where we see violations.”

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