Can a New Kind of Payday Lender Help the Poor?

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Tucked away in a taupe stucco mall in East Oakland, Community Check Cashing’s unassuming storefront blends in between the beauty salon and the immigration law office.

A neon sign flashes in the front window as customers walk in and out, the door rings every time they arrive: a middle-aged landscaper eager to cash a check before returning to work; an elderly woman joking with the cashier as she prepares a bank transfer to a friend; a young father and his son in matching Raiders outfit receive a warrant.

Three other check-cashing and payday loan stores in the neighborhood have bigger stores, bigger crowds, higher fees, and more impressive neon lights. But unlike its neighbors, the small and quiet CCC, now entering its 10th year of operation, is designed to run without making a profit.

“We face both ignorance and the occasional hostility,” said Community Check Cashing founder and executive director Daniel Leibsohn.

With only 1,300 square feet and an annual budget of $ 230,000, CCC serves the same clientele as its for-profit counterparts, but without much rewards, with fees and interest rates less than half that of competition. The organization has had, in Leibsohn’s words, “four near-death experiences” since it opened in May 2009. In the nearly nine years of activity since, there has been only enough income to pay. his salary – $ 60,000 a year, no benefits – less than half the time.

CCC’s charitable tax status has also not allowed it to shake off its associations with the larger and often unsavory industry of storefront financial services. The Consumer Financial Protection Bureau has started investigating the payday lending industry in 2012, promising close monitoring and enforcement. “We recognize the need for emergency credit. At the same time, it is important that these products actually help consumers rather than harm them, ”CFPB Director Richard Cordray said at the time. Later that year, and then again in 2015, Community Check Cashing’s bank closed the organization’s business accounts to avoid being associated with such a notorious industry, according to Leibsohn.

Ironically, or perhaps rightly so, an institution aimed at helping the underbanked has itself suffered from being underbanked.

Tens of millions of Americans live paycheck to paycheck, without a bank account; an account may seem like the more tax-responsible choice, but can accumulate expensive fees. About 30 million banked and unbanked people count on check tellers and payday lenders for convenient and fast cash, despite the stigma and added expense.

There is a growing consensus that the existing range of financial services does not meet the needs of millions of clients and that new options are badly needed, but there is little agreement on the best solution, and whether it should. come from government or the private sector.

Some cities, including Oakland, have unveiled municipal prepaid debit cards, while several start-ups are building app-based lending tools thinking of the underserved. An ambitious plan, most recently proposed by Senator Kirsten Gillibrand, would resuscitate banking services in about 30,000 postal branches. Basic postal banking services were available until 1966. “This idea could eliminate predatory practices in the payday lending industry overnight by providing an affordable and inexpensive alternative.” Gillibrand tweeted of his bill.

In-store check-cashing and loan services have not been widely seen as partners in bridging the financial services gap. Instead, they’re seen as predatory, taking advantage of clients who have nowhere to turn and trapping them in spinning cycles of high-cost debt. This slimy reputation was well deserved. And since the Trump administration has moved to relax regulations about payday lenders, these criticisms have taken on a new urgency.

Although technically not-for-profit, Community Check Cashing operates on a business model that is not that different from its for-profit competitors, albeit much less lucrative. CCC just has lower prices. And its small profits still add up, even if barely.

“There is this argument that payday lenders and check tellers charge exorbitant rates because it is the price of the service and the risk,” said Mehrsa Baradaran, professor at the University’s law school. from Georgia and author of How do the other half-banks. “The CCC shows that this is not necessarily true. It is possible to be profitable and sustainable and not charge such dreadful rates. Their risks seem to be under control and their numbers are quite good. ”

In addition to check cashing, which accounts for most of CCC’s transactions, the store offers money orders, wire transfers, cash payments for gift cards, payday loans up to $ 500, and loans. consumption up to $ 10,000.

Relatively low prices require a higher transaction volume, which is why the store is prominent in an area with heavy foot traffic. The grants and donations that often support nonprofits are particularly missing from Community Check Cashing’s bottom line. The store maintains itself almost entirely thanks to the income earned. “What CCC does very well is it shows this is a viable business,” said Baradaran.

Critics argue that check-cashing and payday loan storefronts offer many ways to help customers get money, but few services focus on helping them save that money: at best, services Storefront banking can help you steadfast, and at worst, they can trap you. under the surface of the creditworthiness.

In a move designed to (someday) cause its own obsolescence, CCC offers financial literacy workshops and personal counseling aimed at changing client behavior and, hopefully, preparing them for greater financial security over time. time. Loan clients are required to follow financial advice and provide three months of bank statements and pay stubs, as opposed to the storefront lender’s standard of one. “A lot of people just don’t want to put up with this to get our prices lower, but the people who do have been better borrowers,” Leibsohn said.

They may be chronically late, he said, but CCC’s default rate is close to zero: According to a review of the company’s books, it failed to recover $ 9,900 on over $ 1.8 million in payday loans at the end of last year.

Jose Rivera readily admitted that he was one of those late borrowers. The personal attention given has made him a loyal customer of Community Check Cashing since 2009.

“CCC shows that a publicly minded institution could follow this model and that it could work,” Baradaran said. Unlike other potential solutions for bank failures, this does not require millions of seed money, dozens of programmers, or any support – or policy change – from the government.

While the storefront barely operates in the dark, Leibsohn is eager to expand. He wants to expand the statewide consumer loan program and launch low-cost prepaid debit cards and check cashing through an app. Community check-cashing was never envisioned as a stand-alone, one-storey business. Leibsohn thinks they could do this in a store half the size with half the staff, as CCC manages administrative support across the chain. Community organizations could host stores or one-stop shops in their existing structures, serving their existing customers.

His early franchise plans were unsuccessful – “We get calls from interested people every now and then, although no one has yet” – but he’s hardly discouraged.

But for CCC or any hopeful imitator to work, they have to reach the millions of people who need them. In 2008, the Fruitvale Transit Village in East Oakland seemed like the perfect location for such a business: unique blend of social services and retail centered at the focal point of a dense and underserved community. Since then, Oakland has grown into one of the hottest real estate markets in the country and Fruitvale one of the hottest areas in that market.

“Gentrification is a real problem for us,” said Leibsohn. Every day, the square is filled with new creditworthy local residents – the kind Leibsohn fears his tiny storefront will see as an eyesore, if not outright tax predator. “Recently we had to put a ‘non-profit, low price’ listing because people come to a check-cashing store here – they’re upset.”

Yet the nature of Fruitvale’s gentrification seems different from that of other California cities. This March, a UCLA studyThe Latino Politics and Policy Initiative found the Fruitvale Transit Village to be a key player in preventing displacement, while increasing local incomes and levels of education. “The city and local governments should view Fruitvale Village… as a case study for positive community transformation,” the study concludes.

This type of transformation means fewer customers for storefront financial services. Some of CCC’s loyal and displaced customers still make it to the small suburban storefront, but monthly check-cashing transactions tend to drop as the neighborhood gets closer. Perhaps the best hope for community check-cashing, and many underserved and underbanked Americans, still lies in the potential of other showcases like this one, still the first and only of its kind.