By Amelia Leaphart
Tennessee has the most predatory lenders in the country, largely due to the large amount of rural, poverty-stricken communities. It’s easy to see how these situations play out: someone who lives paycheck-to-paycheck comes across an emergency cost, like a car breaking down, home repair, or a medical procedure. Because they don’t have any assets, they can’t get any loan from a proper bank.
Flickering fluorescent signs cover strip malls with phrases like “Payday Loans,” and “Fa$t Ca$h,” are littered across rural, economically stagnant parts of the country.
Thus enter predatory lenders. These lenders give them the money upfront then charge criminally high interest rates–as high as 460 percent in Tennessee. These debt repayment programs trap clients into financial black holes of indebtedness.
Betterfi, a local nonprofit business started by Sewanee alumnus Spike Hosch (C’12) in 2018, provides short-term loans at reasonable interest rates for people who are considered “unbankable.”
“Spike’s occupying a niche between traditional banks and predatory lenders to provide capital resources to individuals at a much more reasonable and competitive interest rate,” says David Schipps (C’88), director of the Babson Center and member of Betterfi’s board.
“The Babson center has always hosted a VISTA student. Spike was that individual, and when he graduated a few years ago he continued with this idea and launched it,” Shipps explained.
Hosch returned to Sewanee four years ago as an AmeriCorps VISTA to create an “economic development entity to operate in Grundy county.” He communicated with churches, nonprofits, locals, and businesses for a year before coming up with the concept of Betterfi, and Sewanee and Sewanee alumni were instrumental in providing resources to launch.
“There are a lot of people being screwed by high interest rates,” said Hosch. Betterfi offers loans for people at a lower interest rate, the highest being 24 percent over one year, to people with poor credit scores and can’t get loans from traditional banks. He evaluates the trustworthiness of the person based on their relationship with employment, and if they’re meeting payments for other loans.
After graduation, Hosch worked abroad in Mongolia and Bangladesh by “using finance as a tool for some social end.” He worked with providing loans through a loan company that helps people buy more efficient heating devices. This device creates less pollution and doesn’t require people to buy as much coal. Hosch also learned about the world of predatory lending in Mongolia and Bangladesh and worked with similar companies as Betterfi.
“When I came back to the United States in the VISTA program, I quickly realized there was a correllarly with predatory loans like Payday,” said Hosch, “They advertise short term loans, but they don’t usually end up like that. Because of high interest rates the client has to keep renewing them and they turn into a long term loan.”
Hosch found some aspects of financial black holes to be worse in the States than in Mongolia due to strict requirements imposed by established financial institutions.
“Whether they don’t have credit history, whether they declare bankruptcy, or stop paying something,” explained Hosch, “once their credit score is bad, it takes years and years to build it back up and there’s no option for financing for emergency expenses.”
Betterfi provides an alternative end to this situation.
Betterfi’s first client was referred by her employer, whom she had a good relationship with. She took out a $1500 title loan to buy a car. The car ended up having mechanical problems, making it unsellable, and because she was paying off the loan, she couldn’t afford to make any repairments. She was paying $300 a month for 11 months. For the $1500 loan, she paid about $1460, only being about $80 off the loan. These payments also meant she couldn’t save any money for future payments, which, according to Hosch, “is insane.”
Betterfi paid off the loan, charging her at about 9 percent interest, which she paid off in a short amount of time.
Another issue in the United States is the legality of predatory lending and the failure of the federal government to interfere. According to Hosch, there used to be state mandated caps on interest rates. In Tennessee, they were 8-10 percent per year. Today, most credit cards charge more than a 10 percent interest rate.
“They got a lot of money, a lot of connections. It’s easy to influence state legislatures, and there’s no federal regulation,” said Hosch.
Elizabeth Warren, who today is most recognizable as a progressive Democratic presidential candidate, created the Consumer Financial Protection Bureau in 2011. However, many regulations proposed by the CFPB have been delayed.
Part of working with Betterfi demands that clients take classes to increase their financial literacy. Betterfi works to teach people about their own assets, budgets, and spending habits. They also help decipher financial paperwork that is often confusing. Giving people fair loans doesn’t ultimately solve financial problems, but increasing financial literacy among poorer areas of the country could.
“His business has grown in a short period of time due to Spike’s observations of need in this area,” stated Shipps.
But Betterfi is working to become sustainable; because they have lower interest rates, it’s difficult to cover all the expenses of operating a business. Hosch and his co-workers need liveable salaries. Since their highest interest rate is only 24 percent, they would need to give out hundreds of loans to sustain themselves. They’re always looking for volunteers to help work with clients.
There is a great need across the country, and especially in this region, for concrete and trustworthy forms of financial help. So, we’d better call on Betterfi.