The vicious debt trap of payday loans
Kansas City — a hotbed of illegal payday lending — has hatched a million-dollar idea for combating the often criticized industry.
On Tuesday, The Rockefeller Foundation and Chan Zuckerberg Initiative announced that Onward Financial Inc. is one of 10 companies in the country to receive $1 million grants from the Communities Thrive Challenge. The winners were chosen from more than 1,800 applicants nationwide.
Onward Financial is a program for employers that encourages their workers to start a savings plan, learn about personal finance and, if needed, borrow for emergencies at low interest rates. The program works through an app.
“I’ve been working on this for about two years,” founder Ronnie Washington said of the personal finance app. “It means everything, quite honestly.”
The money roughly triples his budget. It means hiring staff and expanding the program beyond its still tiny Kansas City footprint. Being the youngest grant recipient, Onward Financial gains validation that could open other doors and help attract other funders.
Washington, who is based in Washington D.C., launched the program in Kansas City partly because it’s been a hub for the payday loan industry.
Kansas City was home to an illegal $2 billion payday loan operation led by Leawood businessman and race car driver Scott Tucker. Tucker has been ordered to pay the Federal Trade Commission nearly $1.3 billion and was sentenced in January to more than 16 years in prison. His brother Joel Tucker, a Johnson County businessman, was hit with a $4 million judgment in favor of the FTC and faces criminal charges he operated a fake payday loan scheme.
“We wanted to launch this in Kansas City for a number of reasons, not the least being a lot of the work (The Star’s) Steve Vockrodt had done about Scott Tucker and the payday lending industry there,” said Ben White, who worked previously with Washington at Onward Financial and is now with the Aspen Institute Financial Security Program in Washington D. C.
Kansas City’s payday lending industry also has produced the bankruptcy of a Kansas City company that financed payday lenders, indictments against two American Indian tribes, a $613 million penalty against U.S. Bank, imprisonment of another Kansas City payday lender, a controversial decision by the Consumer Financial Protection Bureau and an episode on Netflix’s “Dirty Money” series.
Meanwhile, Kansas City has been nurturing Onward Financial through a city startup partnership program, a local credit union, a business accelerator program, and a Grandview-based plumbing supply company.
“We’ve been trying to get our people to save money since we started,” said Joe Poskin, who runs Prier Products.
The maker of outdoor faucets found in most home’s backyards started a holiday savings plan for the fewer than 100 employees on staff. But he wanted something permanent, something to help employees prepare for life’s financial emergencies the way the 401(k) plan helps them prepare for retirement.
Something other than payday loans when employees needed help with a car repair, medical bill or other emergency.
Washington said a college classmate introduced him to Poskin and Onward Financial found a home for its first test. Poskin said nearly every employee now takes part in the program.
Onward Financial had been one of five startups in the city’s 2017 Innovation Partnership Program. It had teamed up with Kansas City Credit Union, which helped Prier Products employees open accounts and provided the loans locally.
Washington also is taking part in NBKC Bank’s Fountain City Fintech accelerator program, working toward a conclusion next week.
Kansas City’s payday history has inspired other startups. SoLo Funds, which developed a peer-to-peer lending app, took part last summer in the Techstars Kansas City Accelerator.
Poskin said he sees the Onward Financial program as introducing a new basic employee benefit, alongside 401(k) plans and health insurance.
“That’s our vision. This is just what employers are going to do,” Poskin said.
Onward Financial “quickly rose to the top” in the evaluations of applicants, said Rachel Korberg, an associate director with the Rockefeller Foundation.
She said its Missouri connections also were appealing, beyond Silicon Valley and New York, as well as how it involved employers in building financial security for low- and moderate-income workers.
Each applicant was judged for its impact on improving life in the communities where it works, the potential to increase the scale of the operation or to serve as a model for other communities, how deeply connected it was with the communities it served and the history and commitment of its leaders.
Other grant recipients included groups involved in preventing violence and offering alternatives to detention, connecting those in need with programs that provide benefits, and expanding opportunities for immigrants and working-class residents.