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Tess Vigeland: The compromise financial reform bill features a big win by auto dealers. They will not be subject to oversight from the consumer financial protection agency. However, payday lenders will be. The folks who give you an advance on your paycheck. And charge you triple-digit interest if you don't pay it back on time. In Baltimore, a pilot program is underway that offers the convenience of a cash advance loan at a fraction of the price.
Cathy Duchamp has our story.
Cathy Duchamp: Darrell Witherspoon didn't lose his job. He didn't get sick. The thing forced him to take a loan from a payday lender.
Darrell Witherspoon: I mean, I can tell you it was a parking ticket. That's what it was.
Witherspoon has a steady job as a maintenance supervisor. He also has a checking account. But he was short of cash to pay that parking ticket and a few other unexpected things.
Witherspoon: We didn't have any hard tragedies or medical bills. This was just trying to make ends meet.
Witherspoon tells me about his money troubles on the front porch of the rowhouse he rents. He says it took three to four years to dig out of the debt he racked up with cash advance loans. Last fall he needed another lump sum to move here, a safer place for his wife and three grand-kids. That's when he found out about a program called "Borrow and Save."
Witherspoon: I grabbed the number soon as I seen it. I said I can't believe this is happening because this is what I want, way better than what the alternative was.
Witherspoon got a one-year $1,000 loan at 8-percent interest. A comparable payday loan would cost four-times as much, and come due in just a couple weeks. The money comes from the FDIC and a group of Baltimore community banks. They want to help people who've become dependent on payday loans get back into the financial mainstream.
Witherspoon: Having somebody to have a little faith in us, we didn't have that fear of "can we make this" and it made it easier.
There are other cities experimenting with payday loan alternatives. In fact, the FDIC just finished a pilot program with 30 community banks who are starting to offer affordable small-dollar loans. The takeaway from the study is that financial literacy is key to success. That's why the "Borrow and Save" program requires that people attend personal finance classes.
John Griffin: Just about everything in a credit report rides for 10 years. Bankruptcies ride for 10 years, information rides for 10 years, OK.
John Griffin is a financial counselor with Neighborhood Housing Services of Baltimore. The non-profit manages the Borrow and Save program. Among his students this night -- a single mom getting out of bankruptcy and a young professional thinking about buying a house.
Griffin: Most people assume that someone else is in control of their economic situation when really they have a lot more control than they really know.
For Darrell Witherspoon, information was power. He learned the steps he could take to improve his credit score; things like negotiating payment plans with creditors. Witherspoon's biggest takeaway: it's not just payday lenders who profit from people with money woes.
Witherspoon: Banks prey on you making a mistake. And as you do your normal duties you're not really thinking about maybe coming $2 short off of your $1,000 deposit and then having to pay another $45.
Armed with that knowledge, Witherspoon signed up to direct deposit $40 from every paycheck into a savings account. But he hasn't managed to put away much because of some new, unexpected medical expenses. It's the kind of set-back credit counselors like John Griffin worry about. He says in the long term, people need to stop relying on credit to get by.
Griffin: It has to change, it has to stop. If it doesn't stop we're going to raise a whole 'nother generation of young people who are not going to understand the responsibilities of paying debts on time.
Darrell Witherspoon used his federal tax refund to pay off his loan from the "Borrow and Save" program in just five months. He says he's able to relax without that overhead debt.
Witherspoon: We're just able to keep comfortable living standards, keep our refrigerator full.
And, enjoy the little things, like watching one of his granddaughters graduate from elementary school.
In Baltimore, I'm Cathy Duchamp for Marketplace Money.