Individuals rebuilding lives from addiction, homelessness and prison face often face that reality every day as they attempt to rebuild their life from past mistakes. The simple need to cash a paycheck becomes a costly visit to a payday loan or check cashing company instead of an easy direct deposit into an existing low-cost bank account. And without the ability to save, the working poor become trapped in a costly catch 22 cycle of expensive payday loans to cover emergency expenses making it impossible to save.
In Pittsburgh, Pennsylvania, innovative faithventure Grace Period provides an answer to pay day loans. Working with area churches, the non-profit provides interest free loans of up to $500 if paid back within 13 days. If the borrower needs extra time, the organization will set up a payment plan, usually $50 a month as well as a mandatory savings account.
My friend, Dr. Amy Sherman has written an excellent piece on this project in Christianity Today detailing the unique redemptive repayment process:
Clients enroll as a member in the club for at least one year. Grace Period offers the new member an initial loan and establishes a workable repayment plan. Typically about $50 is deducted automatically each pay period from the member's paycheck to cover loan installments and modest club dues. These automatic payments continue for 12 months. During that time, the initial loan is repaid and additional funds accumulate as an emergency savings reserve for the member. At year's end, members can withdraw funds and close their accounts or remain members, earning interest on their savings. (Read the rest of the article here.)
Last year, the savings cooperative had close to 4000 members and $1.73 million in loans. These numbers show how an entrepreneurial idea that originated in the church is transforming the financial health of the working poor.