JACKSON, Miss. - To drive down Ellis Avenue, just off the interstate, is to visit a paradise of easy money. Along a four-block drag of fast food joints and half-empty strip malls, the payday lenders are packed in tight. The names on their fluorescent signs melt into one another: Paycheck Loans, Advance America Cash Advance, Speedee Cash, Payroll Advance, Cash Flash, Cash Depot, Cash Connection, E-Z Check.
Mississippi, the poorest state in the nation, has more payday lenders per capita than anywhere else in America, and people there have less access to traditional banks than in any other state. But an innovative partnership between the Mississippi Center for Justice, banks and employers is helping to give the state's residents access to responsible small-dollar loans, as well as free financial education and a new way to start building savings and credit.
Dubbed the New Roots Credit Partnership, the center's program pairs community banks willing to provide financial literacy education and small loans with employers who are willing to offer this education to their employees. Now, two years after the program launched in 2013, it is growing slowly.
Across the globe, the small-dollar loans known as microcredit have transformed poor communities by providing entrepreneurs with start-up capital, often as little as $50, to fund small businesses that generate income. The Grameen Bank in Bangladesh, a microlender, was honored with the Nobel Peace Prize in 2006, and small loans have been touted as a breakthrough tactic in the fight against global poverty.
So far, the New Roots Credit Partnership has signed up the cities of Jackson and Canton, as well as a school district in the Delta and a regional housing authority. "It's a win-win-win, " said Charles Lee, director of consumer protection at the Mississippi Center for Justice, during an interview at the group's Jackson headquarters. "Participants get the loans they need, as well as financial literacy training; the bank gets new customers; and the employers cut down on the number of garnishments they have to process each month, while providing their workers with an important benefit."
For employees, the benefits of a program like this are both short-term, in the form of a loan, and longer-term, through the free savings account and the financial literacy education. "I think the first time I went into a payday loan was, I had a light bill that was due, " said Shawana Pierce, a bus driver for Head Start, in a New Roots Credit Partnership video. "Growing up, we did not have discussions about credit, or managing your money, or anything like that. Prior to the program, I did not have a checking account, and taking care of the bills pretty much meant paying cash or getting a money order, " Pierce said. "I really don't know where I'd be at this point if I had not come across the program. I'd probably still be spinning my wheels somewhere, going through the same cycles."
For banks, the New Roots Credit Partnership helps them connect with a big pool of potential new customers. And while it's difficult to turn a profit on small-dollar loans with low interest rates, the benefits for BankPlus are broader than that. "The straight income from the accounts doesn't generate a lot of income, but if you look at the long-term benefits, and the relationships we're building with people, the program is certainly a net positive for the bank, " said Jack Webb, who heads retail banking at BankPlus, one of the banks participating in New Roots.
For employers, the credit partnership helps them address a number of issues that affect their bottom lines. "Employers realized they shared a common problem, that they had employees who couldn't live without having to come for them for advances on the next week's paycheck, " said David Johnson, head of community development at BankPlus. "Additionally, many of the employers were receiving garnishments they had to process from lots of different parties, which creates a payroll nightmare. And thirdly, those employees who were under major financial stress are more likely to be distracted at work and need more time off to deal with emergencies."
Lee at the Center for Justice said it's important to correct the public perception that the only people who need quick cash loans are the very poor or those without steady paychecks. "Lots of people who get paid once a month, like teachers and firefighters, find that there's a gap, a few days at the end of the month when last month's pay is gone, and they need a bridge loan until their next paycheck. That's an easy way to get trapped in the short-term debt cycle."
Rob Fleming is a Canadian politician who represents the riding of Victoria-Swan Lake in the Legislative Assembly of British Columbia. Fleming was elected the British Columbia New Democratic Party Member of the Legislative Assembly (MLA) for the district of Victoria-Hillside in the 2005 British Columbia general election, defeating incumbent...
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