Cooperative Intends to Provide Alternatives to Payday Loans in Minneapolis
Inside Subprime: Dec 13, 2018
By Lindsay Frankel
A Minneapolis cooperative aimed at providing alternatives to payday loans could become the city’s first black-led credit union after receiving a contingent charter approval on Wednesday from the State Department of Commerce. Village Financial Cooperative was established in response to a 2016 police killing with the goal of providing financial services to black residents who may otherwise become victims of predatory lending.
Village Financial’s application will now be reviewed by the National Credit Union Administration, which will determine whether the cooperative will receive insurance for its deposits. More than 1,600 people have already pledged to join, the majority of whom are black residents of north Minneapolis. Their pledges add up to $4.2 million in deposits, according to Me’Lea Connelly, vision and strategy lead for Village Financial, who called this initial approval a “milestone.” She said, “It just confirms the vision that the community had, that they had their finger on the pulse of what really needs to happen to move the dial on economic racial inequities in our state.”
Connelly and others were profoundly impacted by the shooting of Philando Castile, who was killed during a traffic stop by a St. Anthony police officer. The formation of Village Financial came out of the group’s discussions about how to achieve improved economic conditions for black residents. One week after Castile’s death, the idea for a black-led credit union in Minneapolis was born. Village Financial announced on social media Wednesday that it would be “laying the foundation for a Black economic renaissance and a permanent reversal of the economic disparities we have suffered for too long.”
Connelly said Village Financial’s goal is to recruit 5,000 members in time for its opening in 2019. The cooperative plans to open on June 19, a date commemorating the emancipation of black slaves. The cooperative has already received financial assistance from the Jay & Rose Phillips Family Foundation of Minnesota, and will receive $500,000 in allocated funds from the Minneapolis City Council and Mayor Jacob Frey next year.
Council Member Jeremiah Ellison said predatory lenders exploit economically disadvantaged people by charging high interest rates on loans that trap borrowers in debt. With an average interest rate of 400 percent, payday loans are a risky choice for cash-strapped individuals, and payday lenders disproportionately harm low-income communities of color. Village Financial would provide an alternative by issuing low-interest loans to its members.
“Getting people in the know on how to steer their financial future is really important,” Ellison said. “To have that centered in north Minneapolis, a place that has faced some pretty steep disinvestment over decades, I think is really important.”