Studies show that roughly 12 million Americans use payday lending and that Tennesseans use the high-interest, short-term loans more often than less-regulated states.
Chattanooga Neighborhood Enterprise is trying to turn that around with their new low-interest loan program aimed at providing area employees with an alternative to high-risk personal loans.
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Learn more about the program on the web at clcsoutheasttn.org or call Chattanooga Neighborhood Enteprrises at 756-6243756756.6243.6243
Chattanooga has one payday lending store for about every 1,500 households - one of the highest rates in the country, according to a 2017 assessment of short-term payday loans by the Chattanooga Mayor's Council on Women. Most payday lenders in Hamilton County are in areas where household income is below average and along CARTA bus routes, which are more frequently used by low-income persons. The average user of payday loans takes out eight loans a year and the average loan amount is $375 with an average annual interest total of $520.
CNE President and CEO Martina Guilfoil calls Chattanooga "ground zero for payday lending." After all, two of the nation's biggest privately owned payday lenders were started in Cleveland, Tennessee - National Check Advance and Check Into Cash.
The new loan program is fairly simple and straightforward for employers and it allows employees to take out a personal loan anywhere from $400-$1,000 that can paid back through payroll deductions in a 12-month period. Loans are not based on credit history and there are no repayment penalities - just a $20 administrative fee and 18 percent interest.
"When you look at the amount of dollars draining from our urban neighborhoods, it's pretty substantial," Guilfoil says about predatory payday loans. "That $200 or $300 in fees that is going toward payday lending could be going into other family stability resources that the family needs."
The program and loans come at no cost to the employer. CNE was able to partner with Synovus Bank for an initial capital investment of $500,000.
One of the most beneficial aspects of the program is that if an employee doesn't pay the money back then the company is not on the hook for it, although Guilfoil noted the delinquency rate for such loans is only about 3 percent .
Mauri Systo is the program coordinator for the Community Loan Center of Southeast Tennessee. Community Loan Center of Southeast Tennessee is a franchise of the original Community Loan Center started in Texas, which created the software program that CNE, employers and employees will be using to process the loans and requests. The CLC of Southeast Tennessee is considered a CNE program, though.
Systo said employees won't be allowed to take out a loan that is greater than 50 percent of their net income, which includes any other payroll deductions they might have. The employee must be a full-time, benefits-eligible employee and been employed for a certain length of time, as well.
Minimum 18 years of age.Must have worked at a participating employer for a determined amount of time.Must have a checking account.Provide drivers license or passport numbers.Provide Social Security number.Employers can contact Mauri Systo at email@example.com or 423-756-6243 for more information.Information provided by the Community Loan Center of Southeast Tennessee, clcsoutheasttn.org.
"The loans are meant to be affordable and not a burden on the employee who borrows," Systo says.
Having just launched in December, Systo said the program only had two employers in the area signed up for it in January - the Chattanooga Area Regional Transportation Authority, or CARTA, and Kelly Automative Group. Systo's role is to work with employers and train them in the software.
To get a loan, employees can go to a portal online and request the loan for a certain amount, and then the employer is notified via email that they need to verify the person's employment with the company and set up their payroll deduction. Systo and Guilfoil said part of the appeal of the program is that the software was already created.
"I was really interested in it because the backroom operation – how to service the loan and all of that – that's the part that costs money," Guilfoil says. "It's a good way and the most efficient way to get into this line of business."
CNE will also provide free financial counseling to employees who take part in the program but it's not mandatory. While credit scores aren't a determining factor for the loan program, repaying the loan through payroll deductions will help boost an employee's credit score, she said.
CARTA started offering the program to its 215 full-time employees the beginning of December and 51 employees have taken advantage of it already, said executive director Lisa Maragnano.
Maragnano said they often advertise CNE programs, such as their free annual event, Money School, to encourage employees to better their financial situation and steer away from predatory lenders.
"My thought was it would help them gain better control of their financial situation and wouldn't overwhelm them financially and cause them issues down the road," Maragnano explained. "I think it will help people when they need it and not push them into a financial bind."
Guilfoil said that a common misconception they have come across when trying to recruit companies is that many large employers believe this need is already met because they have in-house credit unions. Many loans through credit unions are credit-score driven though, unlike the loans through the CNE program, Guilfoil explained.
"Research shows that people feeling financial pressures are distracted at work," she explains. "We believe that if people have financial worries then it's harder for them to be engaged in their community and in schools, so giving people skills to be better financially prepared and stable really helps a community."