The City of San Antonio is making good on its efforts to regulate the payday lending industry by filing a lawsuit against seven establishments allegedly in violation of the city ordinance.
The ordinance – which, among other things, requires payday and auto-title lenders to register with the city, pay a fee, and limits the amount of the loan – went into effect last year, and since then has seen challenges from the industry. Perhaps the biggest challenge in any regulatory ordinance, such as the newly passed Vacant Structures Ordinance, is enforcement. If the city’s lawsuit prevails, it will be a major victory for the regulatory effectiveness of city law.
But as COSA takes aim at payday lenders, a gap will emerge in financial services. Where do people go for fast cash? There’s little question that the tactics of payday and title lenders is usurious. Their sky-high interest rates are allowed to compound indefinitely, turning a $500 loan into a several-thousand-dollar liability. But without an alternative, many people feel that this is their best option.
So how can banks and credit unions assume that risk while protecting themselves and their clients?
Select Federal Credit Union (SFCU), an outspoken opponent of the payday lending industry, is trying to fill the gap from two directions: accessibility and availability.
One reason payday lenders were successful is that they were densely present in their target markets. While their clients fall across a range of income brackets, the highest concentration is in low income areas, where many are unbanked.
“We definitely have a proliferation of payday lenders, and bank branches are sparse,” said District 2 Councilwoman Ivy Taylor.
SFCU realized that to be effective, they needed to be in the neighborhood. They needed to find places along people’s pathways. Convenience is an issue for those who take public transit or walk to and from work with their paycheck in their hands.
So SFCU found a home in the middle of their target market: Ella Austin Community Center, affectionately known around the neighborhood simply as “Ella Austin” or “Ella.”
The massive building in Dignowity Hill is emerging from a long period of underutilization. With Eastside Promise Neighborhood, Urban Strategies, and Choice Neighborhood (which is run by San Antonio Housing Authority) now officing on the premises, the community center is looking toward a new era as a hub of activity in the neighborhood. As the EastPoint initiative takes hold, the Ella Austin board of directors hopes that the building will become a destination for meetings, forums, and conferences.
SFCU seized the moment to set up shop on the campus, giving them access to senior citizens and families who use the services offered at Ella Austin. They also have access to the employees of Ella Austin and the resident businesses. Employed people are statistically just as likely to use payday lenders as those without steady income.
SFCU goes a step further even, as they have the technology to bring banking directly to the homes of those who have trouble accessing in person or online. They are also working on other partnerships with local businesses and institutions to bring virtual or mini-branches to their facilities.
Ella Austin is easily walkable for neighborhood residents, and the branch has a slower, more relational atmosphere.
“We want to dedicate this branch to sitting down and talking with people,” said John Garcia, head of Business Development and Marketing at SFCU.
From their post at Ella Austin, SFCU is poised to offer not only accessible financial services, but also financial education. SFCU is a designated Community Development Financial Institution, one of only two in San Antonio. They keep their footprint small and nimble, with a focus on increasing financial stability for their members.
“We welcome Select Federal Credit Union because they have the flexibility to do more outreach than a traditional bank,” said Taylor.
SFCU is currently working with Mike Etienne, director of the City of San Antonio Office of EastPoint and Real Estate, to align lenders for applicants who want to move into Wheatley Courts when its renovation is complete. The former Section 8 development is being transformed into mixed-income housing as part of the Wheatley Choice Transformation Plan.
The partnership between SFCU and Ella Austin has been a long process, largely guided by Juan Garcia, who is employed by SFCU as Community Engagement specialist. Juan also happens to sit on the board of Ella Austin, and was able to help the two entities reach mutually beneficial arrangements.
“We’ve been working on this for a year now,” he said.
One delay was a concern for safety. SFCU was robbed in March, which raised concern for the liability of having a financial institution on the Ella Austin premises in close proximity to programs for children and seniors. However, with a SAHA office on premises, a police officer must be stationed at the community center, and eventually community fears were assuaged.
Another way that SFCU is trying to bridge the service gap is by providing a quick cash advance product for their members. A membership at SFCU only requires $5 in a savings account, making it possible for Eastside residents to access financial guidance and services without burdensome fees and prohibitive minimum balance requirements.
Select Cash Now works like a payday loan in some ways, but with securities to protect clients.
SFCU President Belinda McDaniel explained the product:
“Our regulator, the National Credit Union Administration (NCUA) in order to encourage more credit unions to offer small loans, i.e. $200 up to $1,000, raised the maximum Annual Percentage Rate (APR) that credit unions can charge to 28 percent for this type of loan only. There are a number of reasons why they are allowing the high rate but it is primarily because of the high default rate.”
The additional recommendations NCUA preset for a Payday Alternative Loans (PAL) program are to have the following:
- Allow for a maximum six month repayment
- Must be a member of the credit union for a minimum of 30 days to establish a banking relationship
- Must have a savings component (credit union decides what that component will be)
- Can have no more than four loans in a twelve month period, to discourage this type of borrowing as normal budgeting
- Can charge an application fee to cover processing, not to exceed $20
As a Community Development Financial Institution, the credit union also identifies their clients who seem to be relying on payday loans for non-essential costs and can offer financial counseling to help them curb their spending.
*Featured/top image: Street signs off of New Braunfels Avenue. Photo by Iris Dimmick.