The Long Walk Home Breaking the Chains of Predatory Lending
Lisa McDaniel was tired, dog tired. It was nearly 2 a.m. and she was cleaning up after her shift as a cook at Frank’s Place, a restaurant and bar near downtown South Bend.
She dried the last frying pan carefully. She could have hurried to finish — but the long walk home loomed again. The trek would take an hour and a half. McDaniel had been hoofing it back and forth to Mishawaka for more than a year.
She was tired of walking in the middle of the night. She’d been mugged twice. She’d gotten frostbite in her feet from trudging through the snow last year. Winter was coming again.
Tired, but there was no one to give her a ride. No buses running this late. No money to buy a car.
Then last September, McDaniel learned from a social worker that a group of students at the University of Notre Dame were offering small loans for people in need. She’d always avoided payday lenders and others that prey on the poor, but she didn’t like banks either.
“I’d never been asked anything like that. I was jumping up and down, so excited that someone was willing to give me the time of day.”Lisa McDaniel, JIFFI client
“When you walk into a bank, you’re already down,” she says. “You’re trying to do better, but they make you feel like you’re not the right type of person to be there.”
“The students weren’t like that. After they went through my finances, they asked how much I’d be comfortable paying and how often. I’d never been asked anything like that. I was jumping up and down, so excited that someone was willing to give me the time of day.”
McDaniel borrowed $450 and bought a used 1997 Saturn. She got a new job as a pastry chef for the South Bend Cubs. A few months later, she developed kidney stones and couldn’t work for two weeks. Her loan payment was suspended until she received a paycheck again. She paid off the car loan last January, and still drives to work every day and maintains the car herself.
The student group providing this opportunity is called JIFFI, or the Jubilee Initiative For Financial Inclusion. Their mission: Create an alternative to the predatory lending industry in South Bend.
Jake Bebar remembers the exact moment that JIFFI became the dominant influence of his Notre Dame experience. In February 2012, a sophomore named Peter invited about a dozen students to one of the private rooms at North Dining Hall to discuss starting something new.
But then Peter said something extraordinary: There are more payday lending storefronts in the country than there are McDonald’s and Starbucks combined.
Just a freshman at the time, Bebar recalls getting lost hearing financial terms that he didn’t understand. But then Peter said something extraordinary: There are more payday lending storefronts in the country than there are McDonald’s and Starbucks combined.
This startling fact “could not have embarrassed me more,” Bebar says. “It’s not that the industry was so large, but that the industry was so large and I was completely unaware of its existence.”
Bebar marched up to Peter after the meeting and declared that he wanted to help: “I know nothing about microfinance or predatory loans, but I’m super passionate and I have a lot of energy and I’m a quick learner.”
Three years later, Bebar would reflect on everything he learned through JIFFI, marveling that he would become its second CEO and found himself warning his professors that he might have to step out of their classroom if a JIFFI client called his cell phone. He even became a featured speaker at the annual conference of Lend For America, a national organization of campus microfinance groups.
It wasn’t a straight or easy road. Bebar would quit at one point, overcome by doubt that a group of college students could do anything in the face of such a massive challenge. They would make mistakes ranging from staff organization to client communication to year-end transitions. They once tried to recruit clients by standing in the snow handing out flyers in front of a payday lending storefront. That idea didn’t work out so well.
Starting with just an hour a week, the half dozen students who signed up for the group began by surveying the community’s needs. They found that about 7,000 people in South Bend pay an average of $500 a year in payday lending fees — a total loss of $3.5 million from the people who can least afford it. They took a financial literacy course from Bridges Out of Poverty, a local nonprofit that focuses on breaking the cycle of poverty rather than managing it. The commitment kept growing.
“I know nothing about microfinance or predatory loans, but I’m super-passionate and I have a lot of energy and I’m a quick learner.”Jake Bebar, JIFFI’s second CEO
Bebar came to learn that “poverty is a full-time job.” Without any savings or credit, each problem can snowball — for instance, from a car problem or sick babysitter to a lost job.
“We don’t really understand what a poor person is going through and how much of a fight that is until we actually build a relationship with a client and see what they’re going through,” he says. “I think it helps with a lot of stereotypes or perceptions of students who come here from higher-income backgrounds.”
His proudest JIFFI moment didn’t even result in a loan but left him with a new understanding of privilege. Bebar met with a woman his own age who lived at the South Bend Center for the Homeless with her one-month-old infant. She pulled out a notebook where she had recorded every penny she’d spent in the last month, something Bebar barely tracked. Their review helped the woman realize she didn’t need the loan; she could save $80 on her own in just three weeks.
“I think it was the first time someone had told her she could do it, that she could make it on her own,” he says.
Without a doubt, Bebar says, JIFFI changed him. He learned practical skills about startups, staff organization, business processes and time management. He learned how business works in the real world. He also learned the soft skills of managing people and empathizing with poverty. JIFFI became his identity on campus.
“It was an incredible experience, and I wish I could stay and run it,” Bebar says. “But that’s not its mission.”
Peter Woo founded JIFFI not only to help people like Lisa McDaniel. He also foresaw its benefit for students like Jake Bebar, who was McDaniel’s loan officer.
Woo was born in South Korea, but his parents moved three months later to Thailand to undertake missionary work for the next decade. The family moved to New Jersey in 2001 so his parents could pursue further education in theology and ministry before returning to Thailand last summer.
Peter grew up as a first-generation immigrant in a family steeped in service. He picked Notre Dame because he wanted to pursue business and was attracted to the motto of “learning becomes service to justice.” He was chosen as one of the first 25 Hesburgh-Yusko Scholars, a merit scholarship with a focus on leadership and service.
Woo said JIFFI wasn’t a sudden epiphany but rather a culmination of experiences that came together in his sophomore year. He watched the documentary “Maxed Out” in his Intro to Social Problems class and read books that a friend was assigned for an Urban Plunge service project. Over the summer, he did a service project in India for an organization that asked him to research predatory lending in tribal areas.
Woo said he “stumbled across” a predatory lending industry that made him angry. He couldn’t believe that the average borrower paid an APR (annual percentage rate) of 390 percent. In a TEDxUND talk he gave in 2014, he explained the motivational force behind JIFFI.
“This ridiculous rate is being imposed on people making minimum wage,” he says. “How ironic is it that being poor is so expensive? What makes me even angrier as a business student is that payday lending is a $30 billion industry with numerous companies being publicly traded.”
He says the nation’s 25,000 payday storefronts “siphon wealth from the poor and take away their opportunity to get out of poverty,” leaving them in chains of debt.
A Payday Lending Scenario
Your car breaks down and you need $300 to fix it. For a number of reasons, you can't borrow from savings, banks or family.
You visit a payday lender
You borrow $300, to be paid back in two weeks. This comes with a $45 interest payment, for a total of $345. Need to push the due date back? Just pay the $45 in interest, and roll the date back another two weeks.
The average borrower rolls the loan four months. In our scenario, that’s $405 in interest, on top of the $300 you originally borrowed — for a total cost of $705 (an APR of 390%).
A $30 Billion Industry
In South Bend, a dozen payday loan stores average about 600 borrowers in a year, meaning that 7,200 of the city's poorest people lose a total of $3.5 million in interest fees. There are 25,000 payday lending stores in the U.S. That's more locations than McDonald's and Starbucks combined.
He shared these statistics as well as his own charts and fiery passion in the student meeting he organized in the North Dining Hall. He said predatory lending was a huge industry backed by powerful interest groups, a challenge that made him feel small and tempted him to remain passive.
But rather than wait until they graduated — until they had more money and power — Woo convinced the group to focus on figuring out what they could do “at this moment” to bring their passion to a real need found locally. They researched their community and built partnerships with groups like the Center for the Homeless and Bridges Out of Poverty.
The group’s next challenge was to build an organization from scratch. They spoke with Melissa Paulsen, assistant director of the Gigot Center for Entrepreneurship in the Mendoza College of Business. Paulsen put Woo in touch with Lend For America, where he landed a summer internship in Chapel Hill, North Carolina, working with the homeless and learning about how other campus microfinance groups were structured. Those organizations were lending to small businesses, but Woo wanted to focus on personal loans as an alternative to predatory lending.
The building process began during Woo’s junior year. He proposed the name for the group after reading about the Jubilee concept in the Bible. According to the book of Leviticus, every 49th or 50th year, the Israelites observed the practice of freeing slaves and forgiving debts, which Woo saw as God granting a fresh start to correct imperfect social structures that lead to inequality and injustice.
Why then, borrowers have asked, does JIFFI charge an interest rate — and a rate of 21 percent? Woo said the group debated the rate and where to draw the line. One important factor was the desire to sustain the organization with funds for future borrowers. Another was a state law that caps the interest at 21 percent for non-professional groups. He pointed out that JIFFI’s effective rate is much lower, amounting to about $6 on a loan of $100. Ultimately, the decision came down to creating a business relationship.
“Charging [interest] is not done so much out of a desire to profit, but we are trying to serve our neighbors while maintaining their dignity,” Woo says. “A big part of it is treating our clients as equals and not just a person on the other end of a charitable donation.”
“We are trying to serve our neighbors while maintaining their dignity. A big part of it is treating our clients as equals and not just a person on the other end of a charitable donation.” Peter Woo, JIFFI founder
Woo and Bebar said they made plenty of mistakes early on and quickly learned from each one. They had to raise money and incorporate as a nonprofit, track expenses and file tax returns. They had to figure out how to create a full-time lending operation with students who spent much of their time in classes or studying, who normally left campus for semester breaks and summers, and who turned over completely every four years.
And they had to find clients, which didn’t happen until the following March. JIFFI had created slick marketing materials but didn’t have a plan to get them to potential clients. Handing out flyers in the snow in front of payday lender locations had failed.
“We thought that having a nice website and pamphlets would be what it took,” Woo says. “We focused too much on nonessentials, like hardware, and not what really mattered, which was the relationships with our local partners.”
Their first client came through Bonnie Bazata, director of Bridges Out of Poverty. Bazata was impressed by Woo’s ambition. In the past she’d seen numerous student groups with big hearts for serving others, but most lacked the ability to relate to people in need.
“What made Peter remarkable was that he could do both,” Bazata says. “He was brilliant at research and team building, but he was humble and could also connect with people across economic classes.”
Bazata pointed to the group’s uniform as an example. A white T-shirt with a colorful tie and pocket printed on the front offered the perfect mix of approachable and professional.
Bazata said Bridges works with people who often get caught in a debt spin cycle, going to one payday lender to cover the fees at another. Banks don’t see any value in this type of client, but predatory lenders understand their customer’s needs — they have late hours, storefronts within walking distance, no credit checks, and even toys to occupy the kids.
“There aren’t good options for the under-resourced,” Bazata says. “They’re caught between what one writer called ‘the devil and the deep blue sea.’ But JIFFI gives people hope that they can get out of the tunnel of scarcity.”
“There aren’t good options for the under-resourced,” Bazata says. “They’re caught between what one writer called ‘the devil and the deep blue sea.’ But JIFFI gives people hope that they can get out of the tunnel of scarcity.”Bonnie Bazata, director of Bridges Out of Poverty
Woo and Bebar also came to terms with the predatory lenders, who they say offer a necessary evil. They’re still against the exorbitant profits, but that passion was redirected into creating a better alternative with a focus on financial literacy and ultimate self-sufficiency.
Early on, JIFFI faced simple challenges like locating a meeting space. They chose to be an independent organization rather than a school club, so they ventured outside the campus bubble. They rent office space from the South Bend Heritage Foundation and organize carpools for those without cars. JIFFI members, called associates, pay $60 or $100 a year to foster commitment and pay for staff expenses.
The group’s first crowdfunding campaign reached out to family and friends, raising $8,500 in early 2014. That spring they made three loans. The following year, they made 10 more loans at an average of about $285, ranging in purpose from car repairs to job training and a new water heater to paying off payday loans.
Woo and Bebar also learned that constant communication with clients was crucial for the loans to be paid back. JIFFI now designates contacts during school breaks and hires one associate as a summer intern. “Clients not having a good experience was one of the things that held us back from expanding,” Woo said.
When Woo graduated, Bebar became the new leader. The group grew to 40 staff members, organized into departments, and made 16 loans the following school year. It expects to make 20 this year under new leader John Markwalter.
“I got to practice all the things I was being taught,” Woo reflects. “I think the greatest part about leaving with the organization still going is that my peers and friends will have that same opportunity. That’s the thing that makes me most satisfied, actually.”
JIFFI now faces a major decision about its future. State law limits unlicensed lenders to 25 loans per year. Securing a license costs $100,000 and requires hiring a full-time professional with experience.
Paulsen, the current board chair and social entrepreneurship expert who first advised Woo, said the group’s strong early leadership made remarkable progress. But student groups, like businesses, often fizzle if they don’t keep growing, so she said they might have to take the “next leap” in the future after they establish a steady track record.
Lisa McDaniel hopes JIFFI will continue to thrive. She was impressed that Notre Dame students cared enough to engage with “people just trying to get by.”
She still faces plenty of challenges. She has thyroid cancer and is undergoing treatment, despite not having health insurance. Her pastry chef work ended with the baseball season, so she returned to a job with a cleaning service. But she’s not tired now.
The financial counseling JIFFI provided helped her cut expenses. When she was walking to and from work, she bought coffee and candy every day. She also quit smoking. Reconsidering her health and expenses helped her cut the bad habits, at a savings of $1,600 a year. And driving her own car saves her time and and provides access to better deals than convenience stores.
“JIFFI deserves a big thank you from the community,” McDaniel says. “It’s fantastic if they help others as much as they’ve helped me.”
The open road now represents hope rather than a long slog home.