As COVID-19 diminishes and federal and state stimulus payments dry up, debt continues to mount for many as they return to work amid rising prices and stagnant wages.
Laddie Cross, business and lending specialist for Southeast Economic Development Fund Inc. (SEED$), is a retired banker who said many might find it tempting to turn to a payday loan for a quick fix they think will tide them over to the next paycheck.
But, in states like Missouri, which lightly regulates predatory lenders in comparison to other states, those borrowers could face charges equivalent to 463% for short-term loans.
At the end of last summer, SEED$ began offering a program that gives borrowers an alternative to predatory lenders. Launched in July 2020, the Community Loan Center of Southeast Missouri (CLC) is an employer-based, small-dollar loan program offered through participating employers in the East Missouri Action Agency (EMAA) service area. In fact, EMAA is one of the employer participants.
“Someone might have a car repair they don’t have the money for at the time, or someone need to take the family on a vacation and they want to have the extra funds,” Cross said. “We’ve had some employees take out renewals, where they pay off the original loan and take out another one.”
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Cross said the interest rate is a fraction of that charged by payday loan companies on a loan of up to $1,000, and the loan is expected to be paid off in a year. The amount of the loan is determined in part by the borrower’s salary — it can’t be more than 50% of a monthly paycheck, so if someone earns $2,000 a month, they can borrow $1,000.
Cross said the company they franchise with, CLC of America, which determined the 50%-of-salary was a fairly good measuring stick to make sure employees don’t over-borrow to the point they’re financially and emotionally stressed. The company uses a small part of the 18% interest payment for record-keeping and accounting.
“We’re not a payday loan company, we’re considered a consumer lending corporation licensed by Missouri Division of Finance,” Cross said. “There’s a big distinction between payday loan and consumer lending.
"A consumer loan is cheaper, it doesn’t compound like a payday loan. There’s no collateral, and it’s a virtual guarantee you’ll get it, if you work for one of the participating employers and are in good standing. If an employee goes online and applies today and the employer verifies employment by 3 p.m., it’s a pretty good bet, the loan can be funded in a day or two.”
Cross said the program has three participating employers now, but to make the program work even better, they need more employers participating.
“It costs the nothing except for the time it takes to verify employment and coordinate the direct deposit,” Cross said. “It’s an extra benefit for the employee to bridge the gap between paydays.”
To learn more about the SEED$ CLC program and how it can benefit employers, check out clcsemo.org
Sarah Haas is the assistant editor for the Daily Journal. She can be reached at 573-518-3617 or at firstname.lastname@example.org.