It’s been more than five years since Lynette Hill bought a good winter coat.
The 54-year-old is an overnight manager at a check-cashing storefront on the South Side. Hill says she makes ends meet but everyday expenses leave her with little wiggle room.
“I’m mostly a homebody. I go to work and come right back, but it’s still hard,” Hill said.
So when she decided to get a loan for that new coat (“and maybe buy some shoes and pay off some bills”), Hill turned to Capital Good Fund, a nonprofit lender new to Illinois hoping to make inroads with immigrant and working-class communities of color across the state.
Studies show those groups tend to borrow from high-interest lenders like payday and title lenders, which offer instant cash in exchange for a few documents and a signature. But those loans charge anywhere from 36% to 404% in annual interest in Illinois.
Capital Good Fund, on the other hand, charges between 7% and 22% annual interest on loans of $300 to $20,000.
Hill was approved for a $400 loan with Capital Good Fund. She’ll pay $35 a month for 12 months, which comes out to around $20 in fees and interest.
“This illustrates how precarious the lives of low-income folks are in Chicago. It’s winter, it’s cold, and she doesn’t have the wiggle room to purchase a coat,” said Andy Posner, founder and chief executive of Capital Good Fund.
Hill is Capital Good Fund’s first client in Illinois. The nonprofit offers personal loans for a laundry list of needs like auto repairs and furniture and immigration-related expenses such as hiring an attorney or paying green card renewal fees.
To qualify, borrowers submit bank statements and proof of income through the nonprofit’s website, which is also available in Spanish. Processing usually takes a week.
Capital Good Fund operates in four other states and has financed around 4,600 loans worth $9.7 million since 2009.
Posner said he brought the nonprofit to Illinois because “there’s a need for equitable lending across the state.”
Data from the Illinois Department of Financial and Professional Regulation show he’s right: Of the 1.2 million people who took out high-interest consumer loans between 2012 and 2018, nearly 60% of them earned less than $30,000 a year.
Those borrowers took out an average of six loans, which suggests “people can’t get out of the first loan and end up taking out more loans along the way — essentially a debt trap,” said Brent Adams, former head of the IDFPR and current vice president of policy at the Woodstock Institute, a Chicago think-tank.
Adams said payday and title lenders tend to set up shop in poor neighborhoods, hire more Spanish-speaking workers than banks or credit unions, and are open in the evenings and on weekends.
“If I don’t have access to a bank and need a loan, I’m more likely to go to a storefront lender across the street. It’s all part of a cycle that’s embedded in our financial system that exacerbates the racial wealth gap.”
Having worked in the check-cashing industry for nearly 30 years, Hill knows firsthand how high-interest loans can hurt someone’s bottom line.
“I’ve heard so many horror stories,” she said. “People come in and tell me how money is being taken out of their paychecks to pay off the loan, that the interest is twice as much as the original loan they got.”
Capital Good Fund hopes to finance $1 million in loans in Illinois this year. In comparison, high-interest consumer lenders loaned more than $917 million in Illinois in 2018, state figures show.
The nonprofit approves about 40% of loan applications.
“We’d rather deny someone instead of them eventually defaulting on the loan,” Posner said.
Still, Posner contends the nonprofit is helping ease the burden of poverty one loan at a time.
“Imagine you’re a survivor of domestic violence and find an apartment to move into but can’t afford the security deposit. Or you just got a job but can’t afford to fix your car to get to it. That’s who we want to help,” he said.
Carlos Ballesteros is a corps member of Report for America, a not-for-profit journalism program that aims to bolster Sun-Times coverage of Chicago’s South Side and West Side.