KAILUA-KONA — It was only a year ago Savanna Delovio and her family were drowning on dry land. That’s when they found Hawaiian Community Lending.
At 33 years old, Savanna had just become a mother — for the seventh time. Her husband, Kaleo, was on dialysis and slowly climbing his way up the kidney transplant list.
Then their car broke down.
Her husband had no credit score. Her score was abysmal, as she was buried under a mountain of debt — back rent, missed car payments and unpaid cellphone bills piling up with each passing month.
“We didn’t intend on building debt,” Savanna explained. “Things just happened.”
Suffocating, the Delovios turned to payday lenders. But things only got worse.
Instead of climbing out of debt, the family found itself simply shoveling more atop the considerable financial burden under which they were already stooped.
“We (opted) for quick loans with high interest, not knowing a whole lot about it,” Savanna said. “We don’t want to be elderly trying to figure out a place to live and not being able to leave our kids something.”
That’s when the family turned to a small, Hawaii-based loan fund that’s helping the Delovios and others like them build credit and erase debt.
Payday lending as a misnomer
The Delovios’ initial choice to turn to payday lenders is a common one among those who lack a solid grasp of the lending and credit industries, said Jeff Gilbreath, executive director of Hawaiian Community Assets.
Gilbreath said that payday lending is actually a misnomer. Such entities are not really lenders at all.
Instead, they’re what’s called alternative financial services. They can also be referred to as payday advancers. Customers write personal checks to these companies that are held until their next paycheck, or such entities set up automatic draws on customers’ bank or credit union accounts.
“They’re not lending you their money, they’re just waiting to cash your check in two weeks,” Gilbreath said. “They just call employers and determine if they’ll get their fees.”
Fees can often eat up a disproportionate chunk of the borrower’s next paycheck, requiring more deferred deposit loan borrowing.
It’s a cycle that racks up debt and obliterates credit quickly for borrowers who continue borrowing, accumulating one debt in an attempt to keep up with another. Payday lenders also levy heavy interest rates for their services, which Gilbreath said can reach as high as a staggering 460 percent annual percentage rate (APR) for those borrowing frequently in the state of Hawaii.
“I would say the fact that folks are able to charge 460 percent APR is what makes (these financial services) predatory,” he said.
Failed attempts to regulate
Senate Bill 286, introduced in the 2017 state legislative session, addressed deferred deposit borrowing with the intent to “protect against harmful collection practices and define annual percentage rate.”
It sought to enact a cap of 36 percent APR on such financial services, the same as the federally enacted limit on interest that can be charged on any loan made to active-duty service members.
The bill, which died in the House of Representatives, cited a study by The Pew Charitable Trusts saying the typical borrower pays $520 in fees for $375 in credit.
“(This is a) scumbag industry that I know we have to regulate,” said Sen. Josh Green of Hawaii Island’s 3rd District. “We should cap their usury rates in the credit card zone. People have to be protected from this abuse.”
Craig Schafer — who started Money Service Centers of Hawaii, better known by the name Pay Day Hawaii, which fronts each of its six locations throughout the state — said that label isn’t universally deserved throughout the industry.
He acknowledged some “bad actors” across the nation have dragged the reputation of payday advance financing through the muck but added that companies acting appropriately are providing a service that isn’t always readily available, especially in Hawaii.
A car battery puttering out a week before payday in a vehicle a customer needs to get to work. An unexpected plane ticket a customer may require to visit a relative who falls suddenly ill.
Payday advances, when used properly, can help people in pinches like these when there’s nowhere else to turn, Schafer said. But they must be able to afford to pay the fees, or trouble is soon to follow.
Laws to protect sometimes ignored
Hawaii has a law that is supposed to limit payday advances to one per customer at any given time — meaning companies that offer the service aren’t allowed to provide a second deferred deposit advance until the first is paid off, no matter which entity provided it.
Schafer said Pay Day Hawaii adheres strictly to this rule in its own stores, but acknowledged not every company does.
There are also obstacles to confirming if a customer has an active advance out with another company. There is a database, he explained, but it doesn’t expressly state whether customers have advances out, just lists indicators as to whether they’ve made inquiries.
“If I had one complaint about Hawaii, it’s maybe there isn’t better enforcement on this and maybe the law should be more specific and detail how to avoid this sort of thing,” Schafer said.
He added his company puts people on a 90-day payment plan, no questions asked, after four consecutive payday advances, tacking on a 30-day borrowing hiatus after fees are paid off.
“Customers who get into that cycle, again, it gets very expensive, and that’s not the purpose of what we’re trying to do here,” Schafer said.
But certainly not all payday companies share Schafer’s stated philosophy. Nor do they all follow the law.
Schafer said a company called Easy Cash Solutions was infamous for providing multiple advances simultaneously and was eventually shut down, not only throughout Hawaii but across the entire country, after the Consumer Financial Protection Bureau investigated the company’s practices.
Gilbreath noted a mother of three on Oahu his organization helped in just the last few months. She was trying to catch up with four payday advances simultaneously, indicating that some payday institutions in Hawaii continue to play fast and loose with the law.
“She was stuck, man,” Gilbreath said. “Single mother, she’d just gotten divorced, had three kids and she had a good job … but she lost income in the household because of the divorce. She was just trying to make ends meet and keep her head above water.”
Nonprofit looks to change lending
Hawaiian Community Lending is a nonprofit loan fund under the umbrella of Hawaiian Community Assets. It began a program July 1 called the Hawaiian Community Lending Initiative.
One of the initiative’s purposes is to provide small-dollar loans, typically under $5,000, either to help people like Kaleo Delovio build credit or people like Savanna Delovio extricate themselves from nagging debt.
The initiative consolidates debt to allow for manageable relief and also affords emergency loans for rent or mortgage payments. Interest rates on all loans range between 8 and 16 percent APR.
The lending initiative has received 268 calls in its four months of existence. Gilbreath said the average annual household income of inquirers is $44,531, the average household size is 3.4 people and the average credit score is below 640 — the minimum score to qualify for federally backed mortgages and also many public and private rental units.
Typically, those who come in have zero savings.
For these people, Gilbreath said the line between eking by and potential financial catastrophe is typically no wider than one minor emergency. Yet administering loans is not the initiative’s primary activity.
“We’ve been able to help a lot of these individuals with credit counseling and financial education without giving them a loan,” Gilbreath said. “If people are going to payday loans, it might be seen as their last straw, but maybe with a little bit of education and counseling, we have the ability to address that without having to pay anybody any interest.”
On the leeward side of the Big Island, financial counselor Joyce Davis provides this education. She said it’s not just young people or low-income individuals who don’t understand credit or how to fix it that can benefit from her services.
“I have two clients that are 60 years old and have no savings for retirement,” Davis said. “They’ve been on vacation, they’ve purchased their homes, have their cars paid off, but they don’t have savings.”
Davis conducts two four-hour workshops monthly — one on Thursdays from 5-9 p.m. at Na Kahua Hale O Ulu Wini above Costco and the other on Saturdays from 8:30 a.m.-12:30 p.m. at the West Hawaii Civic Center. The next two are scheduled for this Thursday and Saturday, respectively.
More than just a loan
The initiative includes other services, such as an eight-hour homebuyer workshop. It also offers the Punavai Program run through the Office of Hawaiian Affairs. That program offers a 2-to-1 match on up to $1,000 saved over three months to pay off certain bills. It requires proof of Hawaiian ancestry.
The Delovios have benefited from both sides of the Hawaiian Community Lending Initiative. They meet monthly with Davis to track their financials. Kaleo is building his credit with a loan and Savanna will receive a loan in December to consolidate her debt.
“Education to get and stay out of debt, that’s the biggest thing they’ve given me” Savanna said. “We want our own home. Joyce said we can get a home, but it will take work.”
The lending initiative fund began with $150,000, all of which has been lent and is being recouped as recipients make payments. It is then loaned to new customers. Profits from interest go to fund financial educational and counseling services offered by 13 Hawaiian Community Assets employees around the state.
Gilbreath said $805,000 would satisfy the initiative’s current lending demand. He added he fully expects that demand to grow.
The initiative is applying for grants and approaching banks and credit unions to add to its coffers, but it’s also seeking angel investors.
“We’re sort of the little loan fund that could,” Gilbreath said. “We’re really looking for any social impact investors out there … because we can fill a niche.”