St. Louis Community Credit Union steps up to help low income residents.
The combination of persistent poverty and little state regulation has made St. Louis “a hotbed for fringe banking, check cashing and payday lenders” charging an average 450 percent APR to borrowers who can least afford it, says Patrick Adams, CEO of St. Louis Community Credit Union.
That makes the city a great place to experiment with how best to counter predatory lending, and $260 million St. Louis Community CU has stepped up to the challenge. In 2009, the CU launched Prosperity Connection, a nonprofit financial education organization, which in turn has partnered with community and faith-based groups and private funders, including banks aiming to meet their Community Reinvestment Act requirements, to create the RedDough Money Center.
The cornerstone product of this nonprofit lender, which operates out of two offices in low-income neighborhoods, is the “Helping Hand Loan,” an installment loan up to $1,000 at a maximum 36 percent APR with a repayment period of six to nine months.
RedDough, which is staffed by former employees of payday lenders, also offers check cashing, money orders and wire transfers, reloadable debit cards and postage stamps—“everything a fringe lender would do, at a lower price point,” Adams notes.
The first RedDough Money Center opened in March 2016 with support from the 24:1 Community Land Trust, a housing organization serving low-income residents of 24 small municipalities. A second location opened in May.
The RedDough offices anchor “wealth accumulation centers,” which also include Prosperity Connection’s Excel Center to offer financial education and counseling and interactive teller machines that link to St. Louis Community CU, with the aim of offering a full range of financial services in one central location, says Paul Woodruff, VP/community development for the CU and executive director of Prosperity Connection.
In its first year of operation, RedDough made 495 loans with six-month terms averaging $313, for a total portfolio of $215,000. “Our typical customer pays $33 in total interest, as opposed to $500 in interest under the going rate of a payday lender,” Woodruff notes.
The lending agency is also dedicated to “humane collection practices,” he says. “Delinquency is relatively high, but lower than anticipated. We can manage it well, and we have.” RedDough staff work closely with borrowers to emphasize the importance of even partial repayment to support the nonprofit organization for their future use and the good of their community. That approach paid off with a spate of repayments around tax refund time when borrowers had a little extra cash.
“Location is also key,” Woodruff adds. With the opening of the second wealth accumulation center, St. Louis Community CU and Prosperity Connection will continue to provide access to payday loan alternatives. The credit union and its nonprofit affiliates have a network of facilities within two miles of 98 percent of all St. Louis city residents.
The RedDough “experiment” operationalizes some of the recommendations made by the Ferguson Commission’s Economic Inequity and Opportunity Subcommittee, on which Adams and Woodruff served. The commission was formed by Missouri Governor Jay Nixon “to study the underlying social and economic conditions underscored by the unrest in the wake of the death of Michael Brown,” who was shot by a Ferguson police officer in 2014, according to a website featuring the commission’s work.
The venture is off to a good start. “Our biggest goal now is to continue to close on more loans, in order to enhance sustainability,” Woodruff says. “The philanthropists supporting RedDough have made long-term commitments. No one expected this to be profitable in its first year.”
Karen Bankston is a long-time contributor to Credit Union Management and writes about membership growth, operations, technology and governance. She is the proprietor of Precision Prose, Eugene, Oregon.