- February 11, 2014
BY ENEDELIA J. OBREGÓN
Catholic Spirit – The Society of St. Vincent de Paul (SVdP), Diocesan Council of Austin has launched a pilot program to help those crushed by debt from payday loan companies. The Predatory Loan Conversion Program pilot starts in February within five parishes in the diocese and is limited to those whose loans are $500 or less, said Stacy Ehrlich, executive director of the SVdP Diocesan Council.
The program was formed at the urging of Bishop Joe Vásquez, who is concerned that payday loans and auto title loans, which are most often used by those who do not have access to credit, are hurting families. About 70 percent of the payday loans issued in Texas are for $500 or less, said Amelia Erickson, associate director of development for the council. The average payday loan in Texas is taken out for $300 but requires $840 to be repaid, a staggering fact that caused Bishop Vásquez to advocate on this issue before the Austin City Council and in the Texas Legislature to close loopholes in laws that allow these predatory lending practices.
Most loans are very short-term –– two to four weeks in length. But aside from the interest rates, there are finance charges and origination fees tacked on. Those who can't pay the original loan and origination fee, interest and other charges by the end of the loan terms will then have the loan rolled over, meaning that a new loan with more finance charges and origination fees will be generated. When that happens multiple times, people begin suffocating under the weight of what was originally a small loan.
Bishop Vásquez said in the Bishop's Interview of the May 2013 Catholic Spirit that regulation is needed because the exploitation of the poor is only getting worse. A proliferation of payday and auto title lending storefronts have flooded shopping centers and neighborhoods and we are bombarded by the radio and television commercials that promise "easy" and "same-day" cash to entice desperate families in need of help to pay for medical emergencies, groceries, rent or utilities. "Instead of the promise of easy short-term loans, however, financially vulnerable families get trapped in a continuous cycle of debt, fees and interest from which they cannot escape," the bishop said. Barbara Budde, the diocesan director of Social Concerns, said predatory lending has trapped too many families and individuals in a bitter cycle of debt that can crush hope and the human spirit.
"I know Bishop Vásquez is anxious to see alternatives to predatory lending available to the community like this program from the Society of St. Vincent de Paul," she said. Under the program, those predatory loans will not be paid off by the SVdP but will instead be converted into a share-secured credit union loan at under 5 percent APR. SVdP is not the lender, they are the guarantor of the loans: they are raising funds to serve as collateral. Part of that money that will fund the Loan Conversion Program comes from a two-year, $30,000 grant from the Texas Financial Education Endowment - a Texas legislative initiative. The Society has already raised $13,500 in seed money donated by SVdP groups to cover start-up costs.