Assets Matter: Promoting Economic Stability
We were thrilled to be featured in our parent organization’s weekly newsletter, Appleseed This Week! Here’s the complete article, covering our work with the Illinois Asset Building Group:
Two years of Chicago Appleseed‘s work on small dollar lending culminated this month at the Illinois Asset Building Group (IABG) 2012 Conference, “Assets Matter.” Chicago Appleseed Law & Policy Analyst Katy Welter presented two path-breaking tools that she developed with IABG for lenders who want to offer safe yet profitable small dollar loans. The tools are excellent examples of how Appleseed seeks practical solutions and wins for everybody:
- The Alternative Small Dollar Loan Toolkit (ASDLT) summarizes the small dollar loan landscape and resources to help banks and credit unions offer safe, profitable, small dollar loans.
- The IABG Small Dollar Loan Profitability Calculator is a first-of-its-kind web-based tool that enables lenders to assess the profitability of a small dollar loan portfolio.
Chicago Appleseed has long advocated for policies that promote economic stability. In collaboration with the IABG and the Egan Coalition, Chicago Appleseed works to improve financial access for all Illinois residents:
After several years of Appleseed’s advocacy, Illinois passed HB 537 – The Consumer Installment Loan Act (CILA) in June 2010. This law expanded protections created in the 2005 Payday Loan Reform Act (PLRA). These CILA/PLRA laws cap interest on all consumer loans (99% for loans less than or equal to $4,000 and 36% for loans greater than that amount); ban balloon payments, which often perpetuate a cycle of loan renewal; and limit the number of consecutive days a borrower can be in debt to a particular lender.
In anticipation of payday lenders pulling out of the small dollar loan market, Chicago Appleseed and IABG researched the business case for small banks and credit unions to offer payday alternative loans. In late 2010, Appleseed and IABG released “Alternative Small Dollar Loans: Building the Business Case” and an appendix report, “Case Studies of Financial Institutions that Offer Alternative Small Dollar Loans.”
In March 2011, CILA took effect, and the Illinois Joint Committee on Administrative Rules approved rules to implement the law a month later. These rules will be administered by the Illinois Department of Financial and Professional Regulation.
As Illinois embraces stricter regulations of payday loans, payday lenders threaten to make fewer loans–a credible threat, given that more regulation will shrink their already slim profits. Yet Illinois residents with poor or limited credit histories, who are often low-income minorities, need liquidity.
Chicago Appleseed and IABG’s toolkit and profitability model will attract and help small institutions willing to lend to this underserved group–work that no other organization in the state is doing. Showing these institutions that small dollar loans are profitable and meet community-minded goals is a win-win.
Texas Appleseed has supported successful passage of regulatory ordinances in three Texas cities that rein in payday and auto title lending. The ordinances limit the number of times these loans can be refinanced and require that they be tied to borrower’s capacity to repay them on time. In the 2013 legislative session, Texas Appleseed will pursue a statewide “fix” for these problems and limits fees on these loans by limiting the number of times fees can be charged for the same loan and requiring these loans be tied to borrower’s ability to repay.