The last time Leon Cox took out a self-title loan was around six years ago. He was working as a temp and he was not in a strong financial position.
Then his car broke down.
“I had no alternative and needed the money because I needed to get the job,” Cox said.
Cox said he’s turned to payday loans and auto loans many times over the years. He knew it wasn’t a great option, but it was the only option he knew when he needed money to cover an unusually high bill or other expense.
Cox hated how he owed more money than he borrowed after making multiple payments, and hated how lenders harassed him. He said he felt trapped.
“They chase you every payday. They knock on your door, they call you saying, “Hey, you know you owe us.” You owe us,’” Cox said. “And every time you look at the balance of what you owe, it’s like you’re paying all the interest. You see no progress [on the principal].”
These days, the 40-year-old earns a pretty good living building heavy machinery. But he’s had to spend the last few years working to repair his credit, which was rocked every time he missed a payment on a payday or auto-title loan.
“It’s basically modern-day loan sharking,” Cox said. “He’s a modern-day moneylender. But instead of the 60s and 70s, when a loan shark showed up on your doorstep and beat you, they beat your credit.
To start repairing his credit, Cox turned to a credit union his church acquired seven years ago.
Faith Cooperative Federal Credit Union is just a few rooms from Friendship-West Baptist Church in South Oak Cliff. About a thousand people are members, all affiliated with Friendship-West and St John Missionary Baptist Church.
Faith Cooperative does all the typical things of a credit union: savings accounts, mortgages and certificates of deposit.
What’s less typical is a product line for people without good credit called Liberty Loans, six-month loans ranging from $200 to $500.
Director Stephanie Johnson says the loan product was designed to be an affordable, lower-risk alternative to payday loans and car loans.
“We have stock lending stores on almost every street corner, back to back, and so that’s all this community has been able to do is those things,” Johnson said. “You had grandparents who were going to take advantage of these title loans because they had no other options.”
A payday loan will typically carry 35 times more fees and interest than a Liberty Loan. Texas has the most expensive payday loan rates in the country. And unlike auto-title loans, which are secured by a vehicle’s title, Liberty loans don’t put borrowers at risk of having their car repossessed for missing a payment.
The loans were also designed as the first rung of a ladder of credit products offered by the credit union to help people build credit and financial stability,
“It’s not so much what your credit looks like, it’s what you’ve been doing since then,” Johnson said. “You may have had some tough times, so what we’re looking at is, are you back on track? How can we help you get back on track?”
Faith Cooperative reports to rating agencies when a borrower repays a Liberty loan. This positive payment history increases the borrower’s credit rating.
Payday lenders and auto titles don’t do that. They only report one missed payment, which hurts credit scores.
For Leon Cox, who has been a member of Friendship-West for about a decade, working with the credit union to improve his credit has paid off.
“Every time I check my credit score, it steadily increases,” Cox said. “And right now I’m trying to buy a house, because me and my fiancée are getting married, so we’re looking for houses.”
Friendship-West management began laying the groundwork for Liberty Loans nearly a decade ago.
The church had already helped pass restrictions on payday loans in Dallas in 2011, and after that, Pastor Danielle Ayers says church leaders began thinking about next steps. They asked the congregation if they would be able to donate to create a fund for small loans that the church could offer.
“We raised a lot of money. People have really responded to that call to action,” said Ayers, who is a justice pastor at the church. “But then I was like, ‘Yeah, we don’t lend money. We’re a church.’”
She said the church was simply not equipped to handle loans, make collections and comply with complicated federal banking regulations.
But at that time, a credit union founded in the 1950s by St. John’s Missionary Baptist Church was struggling — and needed an infusion of cash and customers to stay afloat. This presented an opportunity for Friendship-West, Ayers said.
“It was a black-owned credit union in the southern part of town, and we didn’t want that to go away,” Ayers said. “So to keep that legacy alive, to keep it alive, because we had raised the money, we were able to acquire the credit union.”
Friendship-West’s work to challenge the dominance of payday lenders in the community is part of a long prophetic tradition within the black church, Ayers said, a tradition of leveraging church resources to challenge oppressive institutions.
“We can’t just do charity alone. We absolutely have to pursue justice and we absolutely have to confront these structures that are broken and certainly not benefiting black, brown and poor communities,” she said.
Faith Cooperative is small now, but there are plans to grow the credit union, expand its work of providing fair and affordable credit and banking services to help the community prosper.
Do you have any advice? Christopher Connelly is KERA’s One Crisis Away reporter, exploring life on the edge of finance. Email Christopher at [email protected] You can follow Christopher on Twitter @hithisischris.
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