In 2014, 90 percent of people seeking housing services from the Housing Development Alliance (HDA) in Perry County were ineligible due primarily to credit and debt issues. Yet, HDA didn’t have anywhere to send people to help them get out of debt, develop good credit habits, or to teach them general financial education. In a lot of communities, credit unions provide financial training and fair loan products. However, there are not many of those options in eastern Kentucky.
HDA formed Redbud Financial Alternatives, Inc. in Fall 2016 to fill part of this need.
“There are banks, but you have to have a good credit history. There are personal finance loans from payday lenders and others that don’t require a good credit history, but the rates are horrible,” Mae Humiston, Manager of Redbud Financial Alternatives, said. “And none provide quite the level of financial education or action planning needed.”
33.8% of residents of Redbud’s counties live in poverty, and the average median household income is $27,627. For comparison, Kentucky’s median household income is $44,811 and the US’s is $55,322.
In Redbud’s first full year of lending in 2017, they helped 15 clients with $41,700 in fair and equitable loans. The majority of Redbud’s loans in this first year helped people meet their goal of qualifying for homeownership programs with HDA. Redbud has since grown beyond housing eligibility to guiding people in developing and practicing good habits and skills that enable them to build personal assets.
They have also developed several other loan products, such as one specifically designed for non-luxury home improvements and a credit rescue loan. Now, they are managing about 65 loans, serving more than 100 clients.
Most of their work is focused in Breathitt, Knott, Leslie and Perry counties, but they are able to work in any county that touches those four counties. Many other agencies in the region refer their clients to Redbud. For example, MACED sends people to Redbud to review their credit report if they aren’t eligible for MACED’s small business loans.
All of Redbud’s clients have the option to work with staff to create a financial action plan. This may include one-on-one credit counseling, budget counseling, check-ins or app recommendations. They also host group financial education sessions. For example, they recently held a financial basics workshop catered to youth in Letcher County.
We had to go to payday lenders when we were in emergency financial situations. This most recent time, it was when my vehicle needed an oil change and a front end alignment, because I couldn’t drive it anymore in the shape it was in. We had no emergency fund so we had to get a payday loan.
Our original loan was for $400. It was due in two weeks, but we couldn’t afford to pay it off, so we had to roll it over. This cost us $69.15 every time – and we had to roll it over 9 times before we finally paid it off with a Redbud loan.
We ended up paying $622.35 just in fees – way more than we had originally borrowed.” –Redbud client
“Most of our clients are working hard to try to build their assets – to say, buy a home or a car – but their past credit history is a block,” Humiston said. “They tell us their goal and together we make a plan to get them to that goal. We pay attention to what their credit score, debt-to-income ratio, and savings need to be for that goal, and break down the process into easy-to-understand steps.”
Redbud is currently working to get an online application and online payment portal set up to help make alternatives to payday lending easier. They also hope this will fill a need for college students who have long gaps between financial aid disbursements, so they can buy books and other supplies when needed.
In Perry County alone, high-cost predatory lenders are responsible for $23 million in loans per year, resulting in $2.6 million in fees annually. The average cost of a $350 payday loan to Kentucky consumers is $822.50, representing $472.50 in interest.
Though Redbud sees predatory lending as an issue that needs to be regulated, they recognize that it is filling a need in the community when people need a financial alternative. Redbud would like to see banks, credit unions and other Community Development Financial Institutions (CDFI) build more alternatives to payday lending.
“Though we need to regulate the existing market, we need alternatives so that people are not forced into even worse options than payday lenders,” Humiston said.
Redbud currently employs one full-time staff person and one full-time AmeriCorps service member. Years of lending expertise is provided by three HDA staff members.
With a new grant, they are currently hiring for a full time loan officer in Fall 2019. This will increase their capacity and help them be more nimble in developing new loan products in response to things happening in their communities, such as emergency disaster relief or business closings. For example, in early July 2019, Blackjewel, a coal mining company, filed for bankruptcy, leaving around 1,800 unemployed and with unpaid back wages. By the fourth week of July, Redbud announced a new loan product with no payments due or interest accrued for the first three months for those affected by Blackjewel, and began signing families up.
Redbud envisions an Eastern Kentucky where everyone has the chance to live a full life despite unexpected life and financial events. We also believe that having access to financial education and fair options for borrowing money is fundamental to establishing Appalachia’s New Day.
About: Appalachia’s New Day is a new storytelling effort offered by MACED to eastern Kentucky communities. We can work with you to help identify, shape and amplify stories about businesses, programs and initiatives in your community that are helping build a new economy in eastern Kentucky. Read more stories here. Contact us or sign up here if you would like more details.
