DONNA — Officials here approved a partnership with the Community Loan Center, a Brownsville-based organization that offers short-term loans which city employees can repay via payroll deduction.
“It is a option (sic) for employees to borrow funds at a moderate interest rate that is a better option than your payday loan type, because their interest rates are through the roof,” Donna Finance Director David Vasquez said after a city council meeting here Tuesday evening.
Representatives from the lender had been attempting to partner with the city of Donna for years, Vasquez said.
Initially, he was wary of supporting such a partnership because he feared the kinds of issues that can arise from taking out small-dollar loans from check cashing, payday or title loan companies.
Such ventures charge astronomical interest rates for ultra-short-term loans — loans that must be repaid in about a month. It’s not unheard of for a payday loan company to charge in excess of 500% interest.
But, as Vasquez learned from CLC representative, Rose Jaramillo, the Community Loan Center was envisioned as an affordable — and non-predatory — alternative to such loans when it was first established in 2011.
The final tipping point for the finance director came when a public works employee approached him recently to ask for help.
“With all due respect, those are lower-level income employees,” Vasquez said.
The employee asked Vasquez if the city had a lending program. Vasquez said it didn’t, but that he had an idea — one that would need the city council’s approval first.
And so, on Tuesday, the Donna City Council unanimously approved the partnership with the Community Loan Center.
Now, city employees will be able to borrow between $400-$1,000 — money that will then be repaid straight from their paychecks.
“It’s employee deduction, so they can take up to 12 months to pay her back,” Vasquez said, adding that the arrangement does not put the city at risk “in any way, shape or form.”
Borrowers will pay 18% interest on the loan, plus an additional $120 fee, according to an informational page on the CLC’s website.
Borrowers don’t need to have a credit history or collateral to take out a loan; however, they do need four personal references and at least a three-month employment history with the employer who will be facilitating the payroll deductions.
In the lending program’s first eight years of operation, the Community Loan Center lent more than $25 million over 28,000 transactions, the website states.
The program was founded by the Rio Grande Valley Multibank, or RGVMB, a “for-profit stockholder held organization owned by twelve banks and organizations,” the website states.
Those banks include national institutions, such as Wells Fargo, Bank of America, and BBVA Compass Bank, but also Texas-based banks, such as Frost Bank, International Bank of Commerce, Lone Star National Bank and Falcon Bank.
Executives from those banking institutions sit on the RGVMB board of directors, but so, too, do leaders from the community, including the United Way and the Cameron County Housing Finance Corporation.
The organization’s ties with the public and nonprofit sectors don’t end there.
Through an agreement, the RGVMB’s operations are administered by the Community Development Corporation of Brownsville.
While the RGVMB is for-profit, revenues generated via Community Loan Center loans are reinvested back into the program as additional lending capital, the website states.