It was in May.
The same scene unfolded twice a month for four months until Massengale, 29, a full-time employee at a call center in Detroit, could save money to pay off the entire loan. . At this point, she had paid a $ 480 fee to borrow the original $ 300.
“It was like I was wasting $ 60 every two weeks for nothing,” Massengale said.
Low and moderate income people like Massengale who fall into the “debt trap” of payday loans may soon have more lower-cost options in Michigan when they need emergency cash and can’t. not get traditional credit to fall back on.
The Michigan Community Action nonprofit is looking to set up a Texas-based loan program that connects employers, nonprofits, and lenders in Michigan. It recruits its members and nonprofits to obtain a license allowing them to lend up to $ 1,000 through a program charging 18% interest, a far cry from the nearly 400% annual rates that for-profit lenders can charge in Michigan.
At the same time, similar employer-led programs that first emerged in Michigan in 2012 are growing.
Carried out by members of Michigan ERN, which organizes workforce assistance groups known as Employer Resource Networks, with support from credit unions and community banks, the programs lend up to ‘to $ 1,000 at interest rates of 5.9% to 11.9%. They are offered by Michigan’s 12 ERN agencies – including the Livingston ERN and Greater Detroit ERN, which primarily serves Wayne County employers – and are expected to be offered by new branches forming in Oakland and Oakland counties. Washtenaw and other parts of the state.
Beyond lower interest rates, employer and nonprofit-led models allow up to a year to pay off loans, financial literacy, and help with budgeting and credit reporting to help borrowers build up credit.
A key element of the programs is that loans are repaid through payroll deductions, a significant difference from payday loans that makes employer involvement crucial. This helps make it the cheapest alternative to payday loans, said Nick Bourke, consumer finance project director for The Pew Charitable Trusts.
