By Amélie Leaphart
Tennessee has the most predatory lenders in the country, in large part due to the large number of poverty-stricken rural communities. It’s easy to see how these situations play out: Someone living paycheck to paycheck faces an emergency cost, like a car breakdown, home repair, or medical intervention. Because they have no assets, they cannot get any loans from a suitable bank.
Glittering fluorescent signs line malls with phrases like “payday loans” and “Fa $ t Ca $ h,” litter rural and economically stagnant areas of the country.
So enter predatory lenders. These lenders give them the money up front and then charge criminally high interest rates, up to 460% in Tennessee. These debt repayment programs trap clients in financial black holes of debt.
Betterfi, a local non-profit business started by Sewanee alumnus Spike Hosch (C’12) in 2018, offers short-term loans at reasonable interest rates for people considered ‘unbankable’.
“Spike occupies a niche between traditional banks and predatory lenders to provide capital resources to individuals at a much more reasonable and competitive interest rate,” says David Schipps (C’88), director of the Babson Center and member of the Betterfi board of directors.
“The Babson center has always welcomed a VISTA student. Spike was that person, and when he graduated a few years ago he pursued that idea and pitched it, ”Shipps explained.
Hosch returned to Sewanee four years ago as AmeriCorps VISTA to create an “economic development entity operating in Grundy County”. He communicated with churches, nonprofits, residents and businesses for a year before coming up with the Betterfi concept, and alumni from Sewanee and Sewanee helped provide resources for the launch.
“There are a lot of people who get ripped off by high interest rates,” Hosch said. Betterfi offers loans to people at a lower interest rate, the highest being 24% over one year, to people with bad credit ratings who cannot get loans from traditional banks. It assesses a person’s reliability based on their relationship with the job and whether they are meeting payments for other loans.
After graduation, Hosch worked abroad in Mongolia and Bangladesh “using finance as a tool for social purposes”. He worked by offering loans through a loan company that helps people buy more efficient heaters. This device creates less pollution and does not force people to buy as much coal. Hosch also discovered the world of predatory lending in Mongolia and Bangladesh and worked with companies similar to Betterfi.
“When I came back to the United States under the VISTA program, I quickly realized there was a correlation with predatory lending like Payday,” Hosch said. “They advertise short-term loans, but they don’t usually end up like that. Due to the high interest rates, the customer has to keep renewing them and they turn into a long term loan.
Hosch found that some aspects of financial black holes were worse in the United States than in Mongolia due to the strict requirements imposed by established financial institutions.
“Whether they don’t have a credit history, file for bankruptcy, or stop paying something,” Hosch explained, “once their credit score is bad, it takes years and years to rebuild it and there is no emergency funding option. expenses. “
Betterfi offers an alternative solution to this situation.
Betterfi’s first client was referred by her employer, with whom she had a good relationship. She took out a title loan of $ 1,500 to buy a car. The car ended up having mechanical problems, making it unsaleable, and because it was paying off the loan, it couldn’t afford repairs. She was paying $ 300 per month for 11 months. For the $ 1,500 loan, she paid about $ 1,460, or only $ 80 off the loan. These payments also meant she couldn’t save money for future payments, which Hosch said “doesn’t make sense.”
Betterfi paid off the loan, charging her around 9% interest, which she paid back in a short time.
Another problem in the United States is the legality of predatory loans and the inability of the federal government to interfere. According to Hosch, there were once state-imposed caps on interest rates. In Tennessee, they were 8-10% per year. Today, most credit cards charge an interest rate greater than 10%.
“They have a lot of money, a lot of connections. State legislatures are easy to influence and there are no federal regulations, ”Hosch said.
Elizabeth Warren, who is today most recognizable as a progressive Democratic presidential candidate, established the Consumer Financial Protection Bureau in 2011. However, many regulations proposed by the CFPB have been delayed.
Part of working with Betterfi requires clients to take courses to improve their financial literacy. Betterfi strives to educate people about their own assets, budgets and spending habits. They also help decipher financial documents which are often confusing. Giving people fair loans doesn’t ultimately solve financial problems, but increasing financial literacy in poorer parts of the country could.
“His business grew in a short period of time because of Spike’s observations of the needs in this area,” Shipps said.
But Betterfi is working to become sustainable; because they have lower interest rates, it is difficult to cover all of the operating expenses of a business. Hosch and his colleagues need decent wages. Since their highest interest rate is only 24%, they would need to make hundreds of loans to support themselves. They are always looking for volunteers to help work with clients.
There is a great need across the country, and particularly in this region, for concrete and trustworthy forms of financial assistance. So we had better call on Betterfi.