High Interest Loan Conversion Program
St. Vincent de Paul Georgia partners with Associated Credit Union to provide a High Interest Loan Conversion Program for Georgians in need. The lender is Associated Credit (ACU) and credit counseling will be done by ClearPoint Credit Counseling Solutions (ClearPoint). These are two major players in consumer credit in Georgia.
The Loan Conversion Program is intended to help make a systemic change in our client’s lives by providing market interest rate loans. The Loan Conversion Program contains two parts – Personal Installment Loans and Car Title Loans. We don’t often get a chance to make such a significant difference in our client’s lives. This program is one of those chances.
All applicants must be referred by a SVdP Conference Caseworker. No unsolicited, public applications will be accepted.
Car-title loans and personal loans are expensive loans averaging more than $1,000 that are secured by the title to a vehicle that the borrower owns free-and-clear. They are traditionally offered as payday-loan-like single-payment loans with one-month terms, which tend to be renewed multiple times like their payday counterparts. An emerging practice is a movement toward longer-term and still high-cost installment products. The very structure of car-title loans leads to problems for consumers, including excessive repayment fees and repossessions.
Title loans are high-cost, short-term small loans secured by a vehicle that the borrower usually owns outright. Such loans, along with payday loans, are used by many people who are shut out from the mainstream banking system. The most common term for title loans is one month, and the interest rate is usually around 300 percent – when expressed as an annual percentage rate.
Many car-title loans combine balloon payments with a short (30-day) loan term, requiring the borrower to repay the full principal plus a substantial fee in just one month. Most borrowers cannot repay the full amount due (principal plus interest) in one payment after just a month and still be able to pay their other expenses. As a result, they end up in a cycle of debt, taking out one loan after another in an effort to stay financially afloat; a loan that is advertised as short-term ends up creating a long-term debt treadmill.
Georgia has banned traditional ‘payday’ loans. But, lenders now market ‘installment’ loans, a product that often drives borrowers into a similar quagmire of debt.
Installment loans have been around for decades. While payday loans are usually due in a matter of weeks, installment loans get paid back in installments over time – a few months to a few years. Both types of loans are marketed to the same low-income consumers, and both can trap borrowers in a cycle of recurring, expensive loans.
Installment loans can be deceptively expensive. Lenders push customers to renew their loans over and over again, transforming what the industry touts as a safe, responsible way to pay down debt into a kind of credit card with sky-high annual rates, sometimes more than 200 percent.
The High Interest Loan Conversion Program is designed to provide an opportunity for SVdP Georgia to help people we serve who have high interest ‘Payday’, ‘Title’, and other loans to convert those loans to a traditional credit union personal loan. This program is administered by the Atlanta Council. This program’s primary purpose is to provide our clients an alternative to predatory lenders. Individual loans are guaranteed by SVdP Georgia. Clients locked into these high interest loans often find themselves in a perpetual cycle of just paying the interest and having to refinance the principal. The inability to ‘get themselves out from under’ loans like this prevent people from becoming financially stable and self-sufficient.
This program is designed to convert existing high interest loans that are preventing people from becoming stable and self-sufficient into new low interest loans that will permit them to get control of their financial situation and move from dependency and need.
All loan applicants must be referred by the sponsoring Conference and approved by SVdP Georgia prior to referral to ACU. The specific Program Highlights are as follows:
- The loans will be administered and issued by ACU while being guaranteed by funds held in reserve by SVdP Georgia.
- The clients will be developed and recommended by Conferences to the Conference Support Center office.
- Loans will be guaranteed by funds held in reserve by SVdP Georgia. The referring Conference will provide 50% of the reserve funds.
- The program is only for existing loans and not for new loans.
- The process for client vetting and approval must be respected and followed in all cases.
- This program cannot support emergency situations. Emergency situations are to be handled at the local conference level in accordance with their normal conference processes and procedures.
- This program is not for the payment of rent, utility bills, appliance purchases, or other typical household operating expenses.
Clients must be employed or have a dependable source of income.
- All loans must be approved by SVdP Georgia prior to referral to ACU.
- ACU may refuse to process a loan even with SVdP Georgia’s guarantee if they have evidence of fraud or illegality.
- The minimum loan amount is $500 and the maximum amount is $1,500. These amounts may be adjusted upon mutual agreement of SVdP Gerogia and ACU under special circumstances.
- The maximum loan term is 24 months; but the credit union and SVdP Georgia can mutually agree to extend that term under special circumstances.
- Not all clients will qualify for this program.
SVdP Georgia and ACU are the client approval levels in the Loan Conversion Program. The Conference will recommend the client keeping in mind that the basic criteria for approvals and recommendation are as follows:
- Clients must be employed or have a dependable source of income.
- Two years physical address verification.
- Documentation requirement: valid driver’s license, state issued ID, or U.S. passport
- Membership account with ACU ($10 fee)
- Social Security number is required for ACU membership
- Loan payment will be an automatic deduction from the account
- Debt ratio <50%. Debt-to-income ratio is calculated by taking total monthly debt and dividing it by gross monthly income. For example, monthly debt of $2,500 divided by gross monthly income of $5,000 is a 50% debt ratio. Note: only debt from the credit report should be used in calculating this ratio and not the cost of groceries, utilities, insurance, etc.
The client is an active participant in the process. The client has certain responsibilities as follows:
- Clients will be required to attend a pre-loan financial literacy training session in order to qualify to receive a loan through this program.
- Clients may be required to attend periodic post-loan financial literacy training for some pre-determined period until the loan is paid off.
- If the high interest loan being paid off with under this program is a ‘Title Loan’, the client will be required to surrender the Title to ACU or SVdP Georgia for the entire term of the loan. Client will also provide the registration to ACU.
- Provide accurate and truthful information on the loan application.
- Provide proof of income to repay the loan.
- Client will secure the payoff letter and deliver to ACU.
- The client must understand that this is a loan and must be repaid as with any loan. The SVdP caseworker or staff member, in conjunction with ACU, will obtain all necessary information about the existing loan.
The Loan Process – SVdP Georgia, ACU and Clearpoint
- Once a client is identified by a Conference as a candidate for a loan the SVdP Georgia staff will be notified by the Conference.
- The home visitor/conference president will review with the client the loan process and requirements to gain client understanding and agreement.
- The Conference home visitor /president will obtain all necessary information about the existing loan.
- Once a client is approved by SVdP Georgia as a Loan Conversion Program candidate, they will contact ACU. ACU will order a credit report and determine the debt ratio of the client.
- ACU will conduct the loan origination meeting, secure all necessary documentation, order and analyze the credit report, review decision criteria including the Debt Ratio and make the final credit recommendation.
- The SVdP CEO has final approval on all loans. SVdP Georgia will maintain a file on each loan with application and CEO approval signature for audit purposes.
- ClearPoint will conduct all financial literacy training sessions.
- Once a loan is approved by ACU a SVdP Georgia/Conference representative will accompany the client to ACU.
- Once the loan ‘closes’ ACU will be responsible for management of the loan. SVdP Georgia will be kept informed of the status of each loan through monthly reports.
- If a client falls 10 days behind on repayment, SVdP Georgia and the Conference will be informed by ACU.