A program that offers East Baltimore residents an alternative to payday loans has more cash to lend and has expanded to include more ZIP codes.
The "Borrow and Save" program, which makes low-interest loans, has extended its one-year pilot to encourage residents to pay down debt and save money.
The mission of the program is to improve the economic well-being of low- to moderate-income families and individuals by providing them access to small loans to break the high-cost, short-term borrowing cycle.
Seven banks and one credit union in the Baltimore Alliance for Economic Inclusion contributed the first $70,000 to the program's loan pool when it launched in September. Several nonprofit grants increased that total to $142,500, said Joan Lok, a community affairs specialist in the Federal Deposit Insurance Corp.'s division of supervision and consumer protection.
The program, run by Neighborhood Housing Services of Baltimore Inc., added three more East Baltimore ZIP codes in March to the original five, said Cassandra Robb, the nonprofit's lending manager. An AEI committee study chose these areas because of the large number of check-cashing and payment-advance stores there, she said.
Applicants must have a steady source of income that is below limits based on household size. The program also evaluates applicants' access to credit.
If they qualify, borrowers can commit to installment loans of $300 to $1,000, with a 7.99 percent interest rate, for as long as a year. "Most credit cards are in the double digits," Robb said, and payday lenders are capped at 33 percent under state law. In addition to the monthly payments, participants agree to take a personal finance course.
More than 80 loans have been made so far, and about $28,000 has been repaid, Robb said. Three borrowers have paid their loans in full, Lok said.
Lestine Wilkins-Bailey is one of those people. Like most in the program, she heard about "Borrow and Save" through word of mouth — in her case, from a co-worker. She took out a $1,000 loan in October to buy new bathroom fixtures for her East Baltimore home.
She said she had used payday lenders in the past for smaller amounts. "Whatever it is they charge you, it's just astronomical," she said.
But in this case, Wilkins-Bailey, who works for the city's law department, doubled and tripled her monthly payments of $86.98 to pay off her loan in June. She said she plans to borrow again for more improvements.
Despite the success of customers such as Wilkins-Bailey, organizers don't plan to expand further, however. The delinquency rate has been higher than the program partners expected, even given the high-risk population, Lok said.
The institutions in the alliance committed to continue the program to refine its operations. "We are still fine-tuning the guidelines," she said.
The program has begun legal action against some borrowers to recover the outstanding debts. "Hopefully, by being serious on our collection procedures, we'll be able to replenish our loan pool," Lok said.
"Borrow and Save" offers an incentive for participants to start a savings habit. If borrowers put away $5 each month through the term of their loan, the program will match that $5, capped at $60, Robb said.
The idea, Robb said, is "if they keep a routine of savings, if an emergency occurs, they have a nest egg to turn to."
The program sends payment records to credit reporting agencies, to help clients build a good credit history. Some customers appreciate the ease of the loan process, too.
"Sometimes banks put you through so much to get a loan," said Wilkins-Bailey. "This made it so much more convenient, without having to break an arm and a leg to get it."
Eligible ZIP codes
Residents in the following ZIP codes can call Neighborhood Housing Services of Baltimore Inc. at 410-327-1200 to apply for the "Borrow and Save" program.
•21202
•21205
•21206
•21212
•21213
•21218
•21224
•21231
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