Non­profit helps break debt cy­cle

Hawaii Com­mu­nity Lend­ing Ini­tia­tive of­fers small loans, credit coun­sel­ing, work­shops

Hawaii Tribune Herald - - FRONT PAGE - By MAX DIBLE West Hawaii To­day

KAILUA-KONA — It was only a year ago Sa­vanna Delovio and her fam­ily were drown­ing on dry land. That’s when they found Hawaii Com­mu­nity Lend­ing.

At 33 years old, Sa­vanna had just be­come a mother — for the sev­enth time. Her hus­band, Ka­leo, was on dial­y­sis and slowly climb­ing his way up the kid­ney trans­plant list. Then their car broke down. Her hus­band had no credit score. Her score was abysmal, as she was buried un­der a moun­tain of debt — back rent, missed car pay­ments and un­paid cell­phone bills pil­ing up with each pass­ing month.

“We didn’t in­tend on build­ing debt,” Sa­vanna ex­plained. “Things just hap­pened.”

Suf­fo­cat­ing, the Delovios turned to pay­day lenders. But things only got worse. In­stead of climb­ing out of debt, the fam­ily found it­self sim­ply shov­el­ing more atop the con­sid­er­able fi­nan­cial bur­den un­der which they were al­ready stooped. “We (opted) for quick loans with high in­ter­est, not know­ing a whole lot about it,” Sa­vanna said. “We don’t want to be el­derly try­ing to fig­ure out a place to live and not be­ing able to leave our kids some­thing.”

That’s when the fam­ily turned to a small, Hawaii-based loan fund that’s help­ing the Delovios and oth­ers like them build credit and erase debt.

Pay­day lend­ing as a mis­nomer

The Delovios’ ini­tial choice to turn to

pay­day lenders is a com­mon one among those who lack a solid grasp of the lend­ing and credit in­dus­tries, said Jeff Gil­breath, ex­ec­u­tive di­rec­tor of Hawai­ian Com­mu­nity As­sets.

Gil­breath said that pay­day lend­ing is ac­tu­ally a mis­nomer. Such en­ti­ties are not re­ally lenders at all.

In­stead, they’re what’s called al­ter­na­tive fi­nan­cial ser­vices. They can also be re­ferred to as pay­day ad­vancers. Cus­tomers write per­sonal checks to these com­pa­nies that are held un­til their next pay­check, or such en­ti­ties set up au­to­matic draws on cus­tomers’ bank or credit union ac­counts.

“They’re not lend­ing you their money, they’re just wait­ing to cash your check in two weeks,” Gil­breath said. “They just call em­ploy­ers and de­ter­mine if they’ll get their fees.”

Fees can of­ten eat up a dis­pro­por­tion­ate chunk of the bor­rower’s next pay­check, re­quir­ing more de­ferred de­posit loan bor­row­ing.

It’s a cy­cle that racks up debt and oblit­er­ates credit quickly for bor­row­ers who con­tinue bor­row­ing, ac­cu­mu­lat­ing one debt in an at­tempt to keep up with an­other. Pay­day lenders also levy heavy in­ter­est rates for their ser­vices, which Gil­breath said can reach as high as a stag­ger­ing 460 per­cent an­nual per­cent­age rate (APR) for those bor­row­ing fre­quently in the state of Hawaii.

“I would say the fact that folks are able to charge 460 per­cent APR is what makes (these fi­nan­cial ser­vices) preda­tory,” he said.

Failed at­tempts to reg­u­late

Se­nate Bill 286, in­tro­duced in the 2017 state leg­isla­tive ses­sion, ad­dressed de­ferred de­posit bor­row­ing with the in­tent to “pro­tect against harm­ful col­lec­tion prac­tices and de­fine an­nual per­cent­age rate.”

It sought to en­act a cap of 36 per­cent APR on such fi­nan­cial ser­vices, the same as the fed­er­ally en­acted limit on in­ter­est that can be charged on any loan made to ac­tive-duty ser­vice mem­bers.

The bill, which died in the House of Rep­re­sen­ta­tives, cited a study by The Pew Char­i­ta­ble Trusts say­ing the typ­i­cal bor­rower pays $520 in fees for $375 in credit.

“(This is a) scum­bag in­dus­try that I know we have to reg­u­late,” said Sen. Josh Green of Hawaii Is­land’s 3rd Dis­trict. “We should cap their usury rates in the credit card zone. Peo­ple have to be pro­tected from this abuse.”

Craig Schafer — who started Money Ser­vice Cen­ters of Hawaii, bet­ter known by the name Pay Day Hawaii, which fronts each of its six lo­ca­tions through­out the state — said that la­bel isn’t uni­ver­sally de­served through­out the in­dus­try.

He ac­knowl­edged some “bad ac­tors” across the na­tion have dragged the rep­u­ta­tion of pay­day ad­vance fi­nanc­ing through the muck but added that com­pa­nies act­ing ap­pro­pri­ately are pro­vid­ing a ser­vice that isn’t al­ways read­ily avail­able, es­pe­cially in Hawaii.

A car bat­tery put­ter­ing out a week be­fore pay­day in a ve­hi­cle a cus­tomer needs to get to work. An un­ex­pected plane ticket a cus­tomer may re­quire to visit a rel­a­tive who falls sud­denly ill.

Pay­day ad­vances, when used prop­erly, can help peo­ple in pinches like these when there’s nowhere else to turn, Schafer said. But they must be able to af­ford to pay the fees, or trou­ble is soon to fol­low.

Laws to pro­tect some­times ig­nored

Hawaii has a law that is sup­posed to limit pay­day ad­vances to one per cus­tomer at any given time — mean­ing com­pa­nies that of­fer the ser­vice aren’t al­lowed to pro­vide a sec­ond de­ferred de­posit ad­vance un­til the first is paid off, no mat­ter which en­tity pro­vided it.

Schafer said Pay Day Hawaii ad­heres strictly to this rule in its own stores, but ac­knowl­edged not ev­ery com­pany does.

There are also ob­sta­cles to con­firm­ing if a cus­tomer has an ac­tive ad­vance out with an­other com­pany. There is a data­base, he ex­plained, but it doesn’t ex­pressly state whether cus­tomers have ad­vances out, just lists in­di­ca­tors as to whether they’ve made in­quiries.

“If I had one com­plaint about Hawaii, it’s maybe there isn’t bet­ter en­force­ment on this and maybe the law should be more spe­cific and de­tail how to avoid this sort of thing,” Schafer said.

He added his com­pany puts peo­ple on a 90-day pay­ment plan, no ques­tions asked, af­ter four con­sec­u­tive pay­day ad­vances, tack­ing on a 30-day bor­row­ing hia­tus af­ter fees are paid off.

“Cus­tomers who get into that cy­cle, again, it gets very ex­pen­sive, and that’s not the pur­pose of what we’re try­ing to do here,” Schafer said.

But cer­tainly not all pay­day com­pa­nies share Schafer’s stated phi­los­o­phy. Nor do they all fol­low the law.

Schafer said a com­pany called Easy Cash So­lu­tions was in­fa­mous for pro­vid­ing mul­ti­ple ad­vances si­mul­ta­ne­ously and was even­tu­ally shut down, not only through­out Hawaii but across the en­tire coun­try, af­ter the Con­sumer Fi­nan­cial Pro­tec­tion Bureau in­ves­ti­gated the com­pany’s prac­tices.

Gil­breath noted a mother of three on Oahu his or­ga­ni­za­tion helped in just the last few months. She was try­ing to catch up with four pay­day ad­vances si­mul­ta­ne­ously, in­di­cat­ing that some pay­day in­sti­tu­tions in Hawaii con­tinue to play fast and loose with the law.

“She was stuck, man,” Gil­breath said. “Sin­gle mother, she’d just got­ten di­vorced, had three kids and she had a good job … but she lost in­come in the house­hold be­cause of the di­vorce. She was just try­ing to make ends meet and keep her head above wa­ter.”

Non­profit looks to change lend­ing

Hawaii Com­mu­nity Lend­ing is a non­profit loan fund un­der the um­brella of Hawaii Com­mu­nity As­sets. It be­gan a pro­gram July 1 called the Hawaii Com­mu­nity Lend­ing Ini­tia­tive.

One of the ini­tia­tive’s pur­poses is to pro­vide small-dol­lar loans, typ­i­cally un­der $5,000, ei­ther to help peo­ple like Ka­leo Delovio build credit or peo­ple like Sa­vanna Delovio ex­tri­cate them­selves from nag­ging debt.

The ini­tia­tive con­sol­i­dates debt to al­low for man­age­able re­lief and also af­fords emer­gency loans for rent or mort­gage pay­ments. In­ter­est rates on all loans range be­tween 8 and 16 per­cent APR.

The lend­ing ini­tia­tive has re­ceived 268 calls in its four months of ex­is­tence. Gil­breath said the av­er­age an­nual house­hold in­come of in­quir­ers is $44,531, the av­er­age house­hold size is 3.4 peo­ple and the av­er­age credit score is be­low 640 — the min­i­mum score to qual­ify for fed­er­ally backed mort­gages and also many pub­lic and pri­vate rental units.

Typ­i­cally, those who come in have zero sav­ings.

For these peo­ple, Gil­breath said the line be­tween ek­ing by and po­ten­tial fi­nan­cial catas­tro­phe is typ­i­cally no wider than one mi­nor emer­gency. Yet ad­min­is­ter­ing loans is not the ini­tia­tive’s pri­mary ac­tiv­ity.

“We’ve been able to help a lot of these in­di­vid­u­als with credit coun­sel­ing and fi­nan­cial ed­u­ca­tion with­out giv­ing them a loan,” Gil­breath said. “If peo­ple are go­ing to pay­day loans, it might be seen as their last straw, but maybe with a lit­tle bit of ed­u­ca­tion and coun­sel­ing, we have the abil­ity to ad­dress that with­out hav­ing to pay any­body any in­ter­est.”

On the lee­ward side of the Big Is­land, fi­nan­cial coun­selor Joyce Davis pro­vides this ed­u­ca­tion. She said it’s not just young peo­ple or low-in­come in­di­vid­u­als who don’t un­der­stand credit or how to fix it that can ben­e­fit from her ser­vices.

“I have two clients that are 60 years old and have no sav­ings for re­tire­ment,” Davis said. “They’ve been on va­ca­tion, they’ve pur­chased their homes, have their cars paid off, but they don’t have sav­ings.”

Davis con­ducts two fourhour work­shops monthly — one on Thurs­days from 5-9 p.m. at Na Kahua Hale O Ulu Wini above Costco and the other on Satur­days from 8:30 a.m.-12:30 p.m. at the West Hawaii Civic Cen­ter. The next two are sched­uled for this Thurs­day and Satur­day, re­spec­tively.

More than just a loan

The ini­tia­tive in­cludes other ser­vices, such as an eighthour home­buyer work­shop. It also of­fers the Pu­navai Pro­gram run through the Of­fice of Hawai­ian Af­fairs. That pro­gram of­fers a 2-to-1 match on up to $1,000 saved over three months to pay off cer­tain bills. It re­quires proof of Hawai­ian an­ces­try.

The Delovios have ben­e­fited from both sides of the Hawaii Com­mu­nity Lend­ing Ini­tia­tive. They meet monthly with Davis to track their fi­nan­cials. Ka­leo is build­ing his credit with a loan and Sa­vanna will re­ceive a loan in De­cem­ber to con­sol­i­date her debt.

“Ed­u­ca­tion to get and stay out of debt, that’s the big­gest thing they’ve given me” Sa­vanna said. “We want our own home. Joyce said we can get a home, but it will take work.”

The lend­ing ini­tia­tive fund be­gan with $150,000, all of which has been lent and is be­ing re­couped as re­cip­i­ents make pay­ments. It is then loaned to new cus­tomers. Prof­its from in­ter­est go to fund fi­nan­cial ed­u­ca­tional and coun­sel­ing ser­vices of­fered by 13 Hawaii Com­mu­nity As­sets em­ploy­ees around the state.

Gil­breath said $805,000 would sat­isfy the ini­tia­tive’s cur­rent lend­ing de­mand. He added he fully ex­pects that de­mand to grow.

The ini­tia­tive is ap­ply­ing for grants and ap­proach­ing banks and credit unions to add to its cof­fers, but it’s also seek­ing an­gel in­vestors.

“We’re sort of the lit­tle loan fund that could,” Gil­breath said. “We’re re­ally look­ing for any so­cial im­pact in­vestors out there … be­cause we can fill a niche.”

GREEN

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