According to a study from the University of Virginia’s Weldon Cooper Center for Public Service, one-tenth of Virginia households make ends meet through high-cost, short-term loans from alternative financial service providers like payday lenders or pawn shops. Forty percent of these respondents use these services to cover basic living expenses.
To combat this cycle that often traps borrowers in debt due to predatory lending processes, Goodwill Industries of Central Virginia (Richmond) has partnered with the Virginia Credit Union and St. James Episcopal Church for almost two years now to offer an alternative to payday lending coupled with financial education and coaching.
The program provides borrowers with a short-term loan that has many of the features of a payday loan—essentially a pay or cash advance—but with important distinctions aimed at helping borrowers transition away from a dependency on these high-cost alternative loans. The goodChoice loan fees are about half as much as payday loan companies’ charges and the loan term can be up to 45 days.
In less than a year and a half, the goodChoice program has served more than 900 customers with a loan, and more than 345 individuals have participated in the financial education program. To date, 77 percent of the borrowers who completed the education program no longer use a traditional payday lender.
In addition to better loan terms, goodChoice borrowers can take part in financial education to improve their financial skills and find more traditional, lower cost lending products. This program includes six hours of coursework as well as one-on-one sessions with a financial coach. Successful completion of the program qualifies borrowers for an incentive grant to reduce their debt. Most important, borrowers acquire fundamental skills needed to better manage their finances in the future.
The Richmond-based Goodwill, which serves 39 cities and counties throughout Hampton Roads and Central Virginia, recognized a pressing need to help many of the people it serves who have credit issues that preclude them from obtaining more traditional personal loans. goodChoice aims at helping individuals become more responsible in their spending and less dependent on payday lending.
For more information about the goodChoice program, check out the program’s informational flyer.