By Bekah McNeel
Belinda Barrera-McDaniel is a crusader. Her cause: financial literacy.
After 24 years of business on the Eastside of San Antonio, she’s done the math and linked many of the economic hardships of her clients to their use of what she and other industry professionals consider to be “predatory lenders” to meet urgent cash needs. Since then she’s become active at Bowden Elementary School, using it as an avenue to educate children and their families about the long-term benefits of savings accounts and budget management.
She shares insider secrets of how predatory lending practices can harm families, and she offers working class families , many
In our times, it’s all too easy to be cynical about the financial industry. We imagine bank presidents meeting over cocktails in Las Vegas to discuss their latest mechanism for bleeding their customers dry by manipulating interest rates while they gamble away the profits. Well, I can’t speak for the big banks, but at Select Federal Credit Union (SFCU), where Belinda steers the ship, this is most definitely not the case. Belinda has studied the allure of predatory lending schemes and found ways to offer the same quick cash benefits without the sky-high interest rates. She also helps people find their way out of the industry perpetuated debt trap. SFCU is part of a Texas Credit Union League (TCUL) movement called REAL (relevant, effective, asset-building,loyalty-producing solutions.
“Credit Unions are designed to serve and provide alternate solutions to combat high fees and interest rates,” Barrera-McDaniel said. “We have bailed more people out of payday loans…we do it every day!”
The most common way that Belinda sees people getting themselves into financial trouble is through the use of payday loans, overdraft programs, and credit cards.
- Payday Lenders are private institutions that cater to a breadth of income levels, but the majority of their clientele are “unbanked,” meaning they do not have checking or savings accounts and live paycheck to paycheck. Often times they cannot afford the bank fees and minimum balance requirements and suffer from a lack of education or opportunity to acquire moire financial literacy from other family members. Many do not speak English, which increases their sense of vulnerability. Payday lenders offer customers an “easy” loan against their next paycheck.
It can be a quick process getting the cash, but paying it back can be something all together different. The average loan size is $325, but could cost the borrower $800 to pay back as interest rates can climb to 400% when the borrower falls behind on a payment, according to TCUL studies. This traps most customers in a cycle of increasing debt. A simple Google search found five payday lenders on New Braunfels Avenue in the 0.9 miles between MLK Drive and Gulf Street, where families tend to occupy the lower rungs of the economic ladder. The lenders are highly unregulated, and spend millions on lobbyists to keep it that way. While federal usury caps prohibit credit unions from charging interest rates above 18.5%, payday lenders are subject to no such stipulations. Texas laws are notoriously pro-lender and anti-consumer.
- Overdraft Programs are linked to checking accounts through banks, and can masquerade as protection against bounced checks (up to a certain amount) and non-sufficient fund fees. However, many of them come with their own fees, as high as $50 and $75 per use of the protection. What is sold as a protection or privilege, may be in fact more detrimental than the original non-sufficient funds (NSF) penalty.
- Credit Cards are the albatross around the necks of so many 20-somethings. Soon after high school graduation comes the barrage of advertisements with the promise of financial freedom: a line of credit. What the fledgling adults don’t know is that the interest accrued in those first months of impulse shopping and dining will hang around longer than their student loans. Wings clipped.
While it’s easy to write these products off as “buyer beware,” Barrera-McDaniel and others feel that predatory lending practices make it hard to “beware.” Lenders have a heavy incentive to create an environment where people have a false sense of security as they fall behind on payments, buy more than they can afford, and lose track of their finances. It’s not just lack of discipline or impulse buying getting people into a debt cycle. It’s often the careful marketing of the lenders making the system appear safer than it is. According to the Center for Responsible Lending, payday lending cost Americans an estimated $3.4 billion dollars in 2003, a number that the National Credit Union Administration (NCUA) reports to have grown to as high as $9 billion in the most recent calculations. That means the industry is very good at marketing its services, especially through the Great Recession that has hit working class families the hardest.
A credit union is the best ally for low-income or high-risk customers. They charge minimal fees and are regulated by the NCUA. Unlike banks, many do not have a minimum balance requirement to keep a savings or checking account, making their services inherently accessible.
To help people fare better in the financial world, Barrera-McDaniel sees the solution as two-fold: education and regulation.
- Education is the demand-side solution. Giving people options and keeping them informed of the risks of high-interest lending will help them avoid the traps. The administration at Bowden Elementary has offered Belinda and her staff the opportunity to go into classrooms with a financial literacy curriculum developed by the credit union. They are able toreach more 500 students, thanks to a grant from the NCUA. With a second grant, Select Federal Credit Union is now planning to open a mini-branch on the campus of Bowden to give parents access to fair lending and banking services. The mini-branch will also provide opportunities for students to handle real money and learn basic teller skills. This sort of community outreach is strongly encouraged by the NCUA. Still, small grants and community outreach can prove to be no match against an industry that is armed with millions and enjoys great influence inside the Texas legislature and with the state’s Republican elected leaders.
- Regulationis the supply-side solution to the predatory lending problem. Even if people are educated and informed,
they may get into desperate situations and feel that payday loans and credit cards are their only options. And haven’t we all lost track of our checking account balance at one point or another, incurring NSF or overdraft protection fees? Vulnerable citizens need to be protected by those who are au fait on the practices of the quick cash industry.
Education can do a lot for those who are not yet trapped in debt cycles. It can keep them far away from establishments where they might get into trouble. The best advice anyone ever gave regarding how to win in Las Vegas: “the house always wins.” However, it’s unlikely that enough of the population will be educated out of the debt cycle to run these establishments out of business. As long as they are in operation, they need to be regulated.
District One City Councilman Diego Bernal agrees with Barrera-McDaniel. He believes local leaders will have to take action to protect consumers against predatory lenders since the state has resisted all efforts to pass such protections.
Coming Tuesday: District One Councilman Diego Bernal makes the argument for City Council action to safeguard the city’s most vulnerable working-class families.
Bekah McNeel is a native San Antonian. She went away to Los Angeles for undergrad before earning her MSc in Media and Communication from the London School of Economics. She made it back home and now works for Ker and Downey as an International Travel Consultant. She is one of the founding members of Read the Change, a web-based philanthropy.