By Richard Meek

The Catholic Commentator

Consumers shackled by the traditional high interest rates of payday loans now have an avenue to establishing financial stability.

Catholic Charities of the Diocese Baton Rouge, with the assistance of several partners, recently launched Faith Fund, an innovative program that will allow borrowers to pay off those loans while also receiving financial advice and budgeting education.

“Our mission is not just to advocate (for the less fortunate) but our mission is to do things (to) serve the poor,” CCDBR executive director David Agiullard said. “It’s part of our Catholic mission that we offer solutions.”

Aguillard noted that consumers often turn to payday loan companies when experiencing a cash crunch. But many of those companies, including national organizations, charge interest rates that can range from 500 percent to nearly 700 percent, he added.

Consumers are often caught in the web of paying off one loan then immediately taking out another loan. Given the escalating principal compounded by high interest rates, many people find themselves ensnared in a financial crevasse that offers no escape.

Lester Dale, director of the CCDBR program, said he met one person who had eight different payday loans. Eventually, the individual was paying $800 of a $900 paycheck to pay back loans, creating a situation where the individual had to continually borrow more money.

“The interest rate is how (payday loan companies) pay their bills,” Dale said, adding he once watched five individuals pay off loans only to get the money back via a new loan.

He said Faith Fund is simplistic in its approach and features three specific steps that not only offer immediate financial relief but also helps the person repair their credit score and live within their means while planning for the future.

The first step is to complete an online application that will be followed by a phone call either from Dale or the New Orleans Firemen’s Federal Credit Union, one of the program’s sponsors.

Other partners include Our Lady of the Lake Regional Medical Center, the Baton Rouge nonprofit agency MetroMorphosis and the Catholic Campaign for Human Development.

The applicant will then come to the north Baton Rouge office where Faith Fund is housed and meet with a credit union representative.

If approved, the credit union calculates the amount owed and pays off that balance to the payday institution. The individual’s loan from the credit union is paid monthly rather than every payday at a greatly reduced rate of 5.99 percent.

Loans are capped at $1,500.

“Monthly it’s a savings, versus paying the entire loan back every pay period,” Dale said. “They (individuals) see more money than what they have been doing in the past.”

Additionally, the borrowers are required to attend monthly financial counseling sessions for one year, where financial consultants will analyze the revenue coming in and what is being spent. After each session, the individual is given homework to complete, such as making calls to credit card companies or making arrangements to pay off bills.

The consultants also offer advice on how to cut back spending so a savings plan can be established.

Consumers are also afforded the opportunity to enroll in a credit repair program through the credit union at no additional cost, and those individuals will be allowed to open up a savings account with an annual $5 charge.

“I’m very excited about this program,” Dale said, adding that since Faith Fund was rolled out in October, 97 people have applied for loans, with the majority being approved. “It’s convenient, it’s right in the community, easy to get to us.”

Aguillard said the seed was planted several years ago on the heels of a failed proposal in the Louisiana Legislature that would have capped the interest rate payday loan companies can charge. As recently as May, a legislative committee rejected a proposed bill that would have created a payday loan product offering loans from $500 to $875 to be paid off in three to 12 months.

That bill would have also capped the interest rate at 167 percent

Currently, state law mandates lenders cap the loan at $350 for up to 30 days.

Aguillard originally believed that “if these (payday loan) organizations have effective rates of 500 percent, surely  there is a competitive product that can be structured that is more economical for the working poor.”

However, he quickly discovered the challenges of developing a financially sustainable model so CCDBR submitted a grant application to the Catholic Campaign for Human Development. The original application was sent back but CCDBR was encouraged to reapply with an improved business plan.

Two years later, armed with a revamped model that included the recommendations of Baton Rouge financial experts, CCDBR reapplied and received a $75,000 grant for three years.

“To offer funds and seed capital to create new structures that adjust some of the institutional realties the working poor have to confront and keep them living on the edge rather than providing them a way out, the CCHD mission aligned with the purpose of this grant,” Aguillard said. “They are particularly excited about this.”

With the assistance of matching funds from the Firemen’s Fund and OLOL, the Faith Fund office opened on Evangeline Street in north Baton Rouge, housed at the site of Families First. Aguillard said that location is ideal because of the demographics of the surrounding area and the fact payday loan companies in those neighborhoods far outnumber mainstream financial institutions.

He said similar programs have been implemented in other parts of the country but rely on donations and fundraising to survive. His goal is to establish a sustainable business model that will cover its expenses and have some revenue left over to invest.

“We are reasonably confident that our model will work,” said Aguillard, who called Dale one of the stars of the agency’s recent disaster recovery program.

Anyone interested in applying should can visit Louisainafaithfund.org or call CCDBR at 225-336-8700.