May 14, 2019

Community Loan Center Celebrates 50,000 th Loan

Today the Community Loan Center (CLC) made its 50,000 th  CLC loan. As an online, employer-based loan program, the CLC program provides workers at participating employers the opportunity to borrow up to $1,000 with a one-year term at 18% interest with a $20 origination fee. Since its inception in Brownsville, Texas in 2011, the network of Community Loan Center local lenders has expanded to include 23 lenders located across 11 states.  These local lenders represent for-profit and non-profit social enterprises seeking a cost effective program to directly engage borrowers and provide access to credit at non-predatory prices.  The Community Loan Center has advanced borrowers over $47 million since inception while saving borrowers over $34 million in interest and fees compared to fees typically charged by payday lenders in Texas.

The Problem Payday and auto title lenders have converged on Texas neighborhoods where loopholes in state finance laws allow lenders to charge much higher financing fees than most other states. These predatory lenders extract over one billion dollars per year in fees from Texans who can least afford it, with interest rates as high as 664% APR. Some payday lenders require payment of the entire loan balance from the borrower’s next paycheck.

These usurious fees trap borrowers in cycle of debt requiring them to sometimes repay thousands of dollars to borrow only a few hundred. Lower paid consumers need credit solutions that consider what is best for the consumer, rather than what is best for the lender.

Development and Expansion of the Community Loan Center During the financial downturn of 2008 and 2009, the number of payday and auto title lenders in Texas increased rapidly, stripping assets out of low income communities. Something had to be done to address this problem and provide reasonably priced credit to vulnerable populations. In 2011, the founder of the CLC program, Nick Mitchell-Bennett with the Community Development Corporation of Brownsville and the Rio Grande Valley Multi-Bank (RGVMB) realized that often the only credit available to his organization's clients was through predatory payday and auto title lenders. These predatory loan products are easy to get, but they come with a steep price. To address the financial needs of their clients the RGVMB created the Community Loan Center, a fairly-priced, employer-based loan that includes free financial counseling for borrowers, relaxed underwriting, and repayments through payroll deduction.   After an initial pilot phase, the RGVMB decided to expand the program initially across Texas and then nationally .

Program Structure The CLC loan program is a national franchise that is building relationships with local community lenders across the country. The RGVMB partnered with Texas Community Capital (TCC), a nonprofit loan fund administered by the Texas Association of Community Development Corporations to build out the franchise model. TCC, functioning as the Community Loan Center of America, recruits lenders to the program from across the country, provides onboarding support and training to the new CLC local lenders, and develops commonly used branded materials with the goal of reducing the barriers to starting a small dollar loan program locally.  All lenders use the online software owned and maintained by the RGVMB and all lenders contract for loan funding and servicing from the RGVMB.

CLC franchisees raise their own lending capital to fund the loans and recruit local participating employers within their service area. When an employee applies for a loan online, the employer verifies the borrower's employment information and the borrower signs the loan documents electronically. The loan funds are deposited to the borrower’s bank account and the borrower repays the loan through payroll deduction. The CLC program is a social enterprise designed to earn revenue for the local lenders. The CLC local lenders earn the 18% interest charged on the loan as well as $10 of the $20 origination fee. The goal is for the local lenders to generate enough revenue from the program to break even and eventually generate enough revenue to support the mission of the organization.

Employer Benefits Each CLC local lender recruits employers from their community to offer the loans to their employees. Although there is no cost or risk to the employers, the employers must agree to make the program available to all employees, agree to verify employment in the loan application process, and submit payments for the loan through payroll deduction. There are several benefits for employers participating in the program in addition to providing a free employer benefit to their workers.  Several employers report that the CLC loan program has helped reduce their employee turnover rate and is helping to reduce distractions in the workplace caused by financial stress. Employers appreciate the online employee verification as it reduces the number of verification phone calls they receive from other lenders. Lastly, the CLC loan program eliminates the need for payroll advances to employees and subsequent tax liabilities to both the employer and employee .

Employee Benefits Based on survey results of CLC borrowers, the overwhelming majority of borrowers find the program easy to use, convenient, and fairly priced. Every borrower surveyed would recommend it to a coworker.

The maximum CLC loan amount is $1,000 and borrowers have a 12-month loan term. CLC loan payments are no more than $23/week for an unsecured personal loan with no prepayment penalties. Borrowers can access free, no-obligation financial education that offers guidance on topics such as getting out of debt, managing student loans, building a retirement savings plan, becoming a homeowner, and gaining access to more conventional credit. More importantly, the CLC program builds financial well-being among borrowers. Based on CLC borrower surveys, the average CLC borrower ranks themselves comparably to the average American based on the Consumer Financial Protection Bureau’s Financial Well Being Index. CLC borrowers self score themselves 11 points higher on average than the typical payday loan borrower. Financial well being increases for CLC borrowers who have either reduced debt or increased savings since taking out the CLC loan. Borrowers utilizing the CLC Program more than once self report also higher financial well-being scores. In short, having access to the CLC program gives borrowers peace of mind in managing their finances.

Results to Date Reaching the CLC network’s 50,000 th loan involved a multi-year campaign to grow the number of local lenders and eligible borrowers. As a result, CLC loans and financial education are now available to over 110,000 employees in over 160 public and private workplaces. At this time, three of the eleven largest cities in the US now offer CLC loans to their city employees.

The impact of the CLC program is significant. At the core of the program, CLC lenders have advanced borrowers over $47 million over the last eight years while saving borrowers over $34 million in interest and fees compared to fees charged by payday lenders in Texas. The CLC Program offers a product that is fairly priced and builds financial well being instead of trapping borrowers in a cycle of debt from which they cannot escape. More Information To stay up to date on the latest program developments, p lease be sure to follow the Community Loan Center of America on Twitte r and Facebook.

For more information about the Community Loan Center including how to invest in the CLC Program or to bring the CLC loan program to your community, please call (512) 916-0508 or email Howard Porter at [email protected] .

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