Can a New Kind of Payday Lender Help the Poor?
Nestled in a taupe stucco shopping plaza in East Oakland, Community Check Cashing’s unassuming storefront blends in between the beauty salon and the immigration-law office.
A neon sign blinks in the front window as customers stream in and out, the door chiming for each arrival: a middle-aged landscaper eager to cash a check before heading back to work; an elderly woman joking with the teller as she preps a wire transfer to a friend; a young father and son in matching Raiders gear getting a money order.
Three other check-cashing and payday lending shops in the neighborhood boast larger stores, bigger crowds, higher fees, and more impressive neon. But unlike its neighbors, the tiny, quiet CCC, which is now entering its 10th year of operations, is designed to run without turning a profit.
“We face both being ignored and the occasional hostility,” said Community Check Cashing’s founder and executive director, Daniel Leibsohn.
With only 1,300 square feet and a $230,000 annual budget, CCC serves the same customer base as its for-profit counterparts, but to no great reward, with fees and interest rates adding up to less than half those of the competition. The organization has had, in Leibsohn’s words, “four near-death experiences” since its opening in May 2009. In the nearly nine years of operation since, there’s only been enough revenue to pay his salary—$60,000 a year, no benefits—less than half the time.
Nor has CCC’s charitable tax status allowed it to shake off its associations to the larger, and often disreputable, storefront-financial-services sector. The Consumer Financial Protection Bureau began investigating the payday-lending industry in 2012, promising close oversight and enforcement. “We recognize the need for emergency credit. At the same time, it is important that these products actually help consumers, rather than harm them,” then-CFPB Director Richard Cordray said at the time. Later that year, then again in 2015, Community Check Cashing’s bank closed the organization’s business accounts to avoid being associated with such a notorious industry, according to Leibsohn.
Ironically, or perhaps fittingly, an institution aiming to help the underbanked has itself suffered from being underbanked.
Tens of millions of Americans live paycheck to paycheck, without bank accounts; an account may appear to be the more fiscally responsible choice, but can rack up costly fees. Roughly 30 million of the banked and unbanked alike rely on check cashers and payday lenders for convenient, quick cash, despite the stigma and extra expense.
There is a growing consensus that the existing array of financial services does not meet the needs of millions of customers, and that new options are sorely needed—but there’s little agreement on the best solution, and whether it should come from government or the private sector.
Some cities, including Oakland, have unveiled municipal prepaid debit cards, while several start-ups are building app-based lending tools with the underserved in mind. One ambitious plan, most recently proposed by Senator Kirsten Gillibrand, would resurrect banking services in roughly 30,000 Post Office branches. Basic postal banking had been available until 1966. “This idea could wipe out the predatory practices of the payday loan industry overnight by providing an accessible and low cost alternative,” Gillibrand tweeted of her proposed legislation.
Storefront check-cashing and lending services have not enjoyed wide regard as partners in bridging the financial-service gap. Instead, they are perceived as predators, taking advantage of customers who have nowhere else to turn, and trapping them in revolving cycles of high-cost debt. That slimy reputation has been well-earned. And as the Trump administration has moved to loosen regulations on payday lenders, those critiques have taken on a new urgency.
While technically a nonprofit, Community Check Cashing runs on a business model not all that different from its for-profit competition—though far less lucrative. CCC simply has lower prices. And its tiny profits still add up, if barely.
“There’s this argument that payday lenders and check cashers charge exorbitant rates because that is the price of the service and the risk,” said Mehrsa Baradaran, a professor at the University of Georgia’s law school and the author of How the Other Half Banks. “CCC shows that’s not necessarily true. It’s possible to be profitable and sustainable and not charge such terrible rates. Their risks seem to be in control, and their numbers are quite good.”
In addition to check-cashing, which accounts for most of CCC’s transactions, the store offers money orders, money-wiring, cash payments for gift cards, payday loans up to $500, and consumer loans into the lower $10,000s.
Comparatively low prices require a higher volume of transactions, which is why the store is conspicuously located in an area with heavy foot traffic. Notably absent from Community Check Cashing’s bottom line are the grants and donations that often shore up nonprofits—the store sustains itself almost entirely through earned revenue. “What CCC does very well is they’re showing this is a viable business,” said Baradaran.
Critics contend that check-cashing and payday-lending storefronts offer many ways to help customers get money, but few services aimed at helping them save that money: At best, storefront banking can help you tread water, and at worst, it can trap you below the surface of solvency.
In a move designed to (someday) cause its own obsolescence, CCC offers financial-literacy workshops and personal counseling aimed at shifting clients’ behavior, and hopefully setting them up for greater financial security over time. Loan customers are required to take financial counseling, and provide three months of bank statements and pay stubs, as opposed to the storefront lender standard of just one. “A lot of people just don’t want to put up with that to get our lower prices, but the people who do have been better borrowers,” said Leibsohn.
They may be chronically late, he said, but CCC’s default rate is near zero: According to a review of the company’s books, it failed to recover just $9,900 on over $1.8 million in payday loans at the end of last year.
Jose Rivera readily admitted that he’s one of those tardy borrowers. The personal care in service has made him a loyal Community Check Cashing customer since 2009.
“CCC shows that a publicly minded institution could follow this model and it could work,” said Baradaran. Unlike other potential fixes for broken banking, it doesn’t require many millions in start-up capital, dozens of programmers, or any support—or policy change—from government.
While the storefront is just barely operating in the black, Leibsohn is eager to expand. He wants to take the consumer-lending program statewide, and launch low-fee prepaid debit cards and app-based check cashing. Community Check Cashing was never envisioned as a stand-alone, one-shop enterprise. Leibsohn thinks they could do it in a store half the size with half the staff, as CCC runs back-of-house support across the chain. Community organizations could host the stores or single windows in their existing structures, serving their existing clients.
His early plans to franchise haven’t panned out—“We get some calls from people who are interested once in a while, though no one’s done it yet”—but he is hardly deterred.
But in order for CCC or any hopeful imitators to work, they have to reach the millions who need them. In 2008, the Fruitvale Transit Village in East Oakland seemed like the perfect location for such a business: A unique mix of social services and retail centered at the focal point of a dense, underserved community. Since then, Oakland has become one of the hottest real-estate markets in the nation—and Fruitvale, one of the hottest neighborhoods in that market.
“Gentrification is a real issue for us,” said Leibsohn. Each day the plaza is filled with new, solvent local residents—the kind Leibsohn fears see his little storefront as an eyesore, if not an outright fiscal predator. “Recently we had to put a ‘nonprofit, low prices’ sign up because people come by and see a check-cashing store here—they’re upset.”
Yet the nature of Fruitvale’s gentrification appears different from other California cities’. This March, a study from UCLA’s Latino Politics and Policy Initiative found that the Fruitvale Transit Village was a key player in preventing displacement, while raising local incomes and education levels. “City and local governments should consider Fruitvale Village…as a case study for positive community transformation,” the study concludes.
That kind of transformation means fewer customers for storefront financial services. Some of the CCC’s displaced, loyal customers still travel to the little storefront from the suburbs, but monthly check-cashing transactions are trending down as the neighborhood is coming up. The best hope for Community Check Cashing, and many underserved, underbanked Americans, may yet be in the potential for other storefronts like this one—still the first and only of its kind.
Susie Cagle is a journalist and illustrator based in Oakland, California.
Co-published with The Nation.