Offering loans, without profit

Program takes aim at the high cost of payday lending

By Steve Law

The Portland Tribune, Nov 5, 2009 (1 Reader comment)

L.E. BASKOW / TRIBUNE PHOTO

Angie Harbin (right), director of resident services for Innovative Housing, helps Siegfried Lipscomb work out his monthly budget so he can catch up on a late rent payment. The company, which builds and manages low-income housing, is creating a nonprofit payday loan alternative for people who previously were caught in a cycle of debt.

Siegfried Lipscomb once took out an emergency “car title” loan of $1,700 to buy tools for his landscaping business.

Big mistake.

He didn’t realize the interest rate was 300 percent, and the loan payments were so punishing he couldn’t pay it off. “I had to give up my truck and my business and all my tools and everything,” Lipscomb says.

Now working as a cab driver, Lipscomb got into a pinch again recently when his veteran’s check was delayed, and he missed his rent payment at Morrison Park apartments in downtown Portland. Fortunately for him, his landlord fronted him the money, while offering one-on-one counseling to help him straighten out his finances and work out a payment plan.

Innovative Housing Inc., the Portland affordable housing developer that owns Morrison Park, hopes to take its counseling model to a new arena to help other people escape from an endless cycle of debt.

In January, Innovative Housing launches a nonprofit version of payday loans, providing emergency short-term money to its tenants and others, along with one-on-one counseling and workshops on budgeting and money management. It will be the first program of its kind in Oregon.

“Our goal is to use the loan as an entry point … to offer teachable moments,” says Sarah Chenven, a program manager for the nonprofit group.

Overdraft costs

Innovative Housing was spurred to action by the Oregon Legislature, which, after hearing testimony about how payday loans trapped people into a cycle of debt, capped the interest rates on the loans at 36 percent. Oregonians strapped for cash took out nearly 1 million payday loans in 2006, but most of the lenders closed their doors when the new limits took effect in July 2007 — six months before the great recession hit.

Seeing how many tenants remained in a state of recurring financial crisis, Innovative Housing applied for and received a $100,000 grant from the federal government and $200,000 from the Meyer Memorial Trust to launch a nonprofit version of payday loans. Tenant surveys and focus groups revealed the demand for cash didn’t go away. Instead, tenants were turning to online payday lenders — many of which openly violate the Oregon interest rate cap. Or the tenants were bouncing more checks and incurring multiple overdraft fees from their banks, Chenven says.

Payday lenders have a vested interest in keeping people hooked on the loans, Chenven says. “We’re trying to break the cycle,” she says.

Innovative Housing expects to provide lower interest rates than payday lenders, and more lengthy periods to pay back the loans. The counseling component is what makes the real difference, Chenven hopes.

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