Illinois Asset Building Group - Building Financially Strong Families and Communities

On November 17th, IABG co-hosted, in conjunction with the FDIC, State Treasurer’s Office and the Woodstock Institute, a symposium on the opportunities and challenges in offering alternative small dollar loans through mainstream financial institutions in Illinois.

The need for short term, small dollar credit among low- and moderate-income persons exists, and the present payday lending industry is not meeting that need in a just manner. Instead of providing a helpful bridge across difficult financial periods, these lenders often push borrowers to fall deeper into the chasm of financial distress. Certain features of the industry’s products serve to ensnare borrowers and force them to continually renew their debt, to their financial loss and detriment. Effectively regulating these products and this industry in Illinois, however, has proven to be difficult.

By enlisting credit unions and banks (which boast numerous institutional advantages in offering such credit) to introduce small dollar loans with reasonable interest rates and without usurious features, low- and moderate-income borrowers are provided an opportunity to not only avoid the danger of payday lenders, but also attain the immediate credit they need.

The symposium, held at the Federal Reserve Bank of Chicago, brought together representatives of regulatory agencies, research and advocacy organizations, as well as banks and credit unions that have begun offering such loans.

The symposium began with introductions by State Treasurer Alexi Giannoulias and Heartland Alliance Vice President Joseph Antolin, both speaking on the timeliness and importance of this effort.

The first panel featured presentations by Chris Giangreco, policy associate from Heartland Alliance, and Tom Feltner, communications director from the Woodstock Institute. Mr. Giangreco explained the cyclical nature of current payday lending products and demonstrated how low- and moderate-income persons, when forced to seek this high cost credit, can so easily find themselves in a much more tenuous financial situation. Mr. Feltner provided an overview of the current legislative landscape and relayed the next steps in advocating for proper regulation of the payday loan industry. Caprice Killingsworth, an employee of A Safe Place, a domestic violence shelter, recounted how a small dollar loan from Lake Forest Bank & Trust, which partners with A Safe Place, helped her overcome a financially distressing period and how these loans accomplish the same for many of the clients with whom she works.

The second panel included representatives from financial institutions which currently offer small dollar loan programs or a variation. Lisa Meggs from Lake Forest Bank & Trust and Ed Jacob from North Side Community Federal Credit Union both detailed their institutions’ histories of offering small dollar loans, lessons they’ve learned, and their continued satisfaction with their programs’ successes. Additionally, Joan Lok, a Community Affairs Specialist at the FDIC, spoke on an alternative approach to a small dollar loan program – a small dollar loan loss reserve pool. Recently begun in Baltimore, this small dollar loan model pools together the financial resources of several banks and couples it with the outreach expertise of a community based organization. The program is only a few months old, but already expected to report a high lending volume and small default rates.

The final panel included representatives from regulatory agencies, including the Illinois Department of Financial and Professional Regulation (IDFPR), FDIC, and the Illinois Attorney General’s Office. Secretary of the IDFPR, Brent Adams, illuminated again the problem posed by the current payday lending industry and the immediate need to pass proper regulation. Michelle Cahill represented the FDIC and emphasized that the FDIC highly favors small dollar loan programs and gives strong CRA consideration to institutions which offer these programs.

The event enjoyed vocal and enthusiastic support, in addition to an engaging discussion among consumer advocates, regulators, and representatives from financial institutions. The symposium has already proven fruitful as representatives from IABG, the State Treasurer’s Office, and local financial institutions are working to use funds from the Treasurer’s Micro Loan program to jump start further small dollar lending. IABG hopes to explore various avenues in expanding this industry and aims to accomplish this work in the immediate future.

If you have questions about IABG’s work to introduce or expand small dollar loan programs in the state, please contact Chris Giangreco at 312-870-4939 or cgiangreco@heartlandalliance.org.