The Chicago Teachers Union (CTU) sent out an email to its members recommending a new membership benefit: BMG Money’s Loans For All program in which “all credit scores are welcome.”
“BMG Money may be a suitable alternative for those with less-than-perfect credit who need a loan fast for an emergency. If you have limited options, BMG Money loans are a better alternative than predatory loans because the APR is generally significantly lower.”
While the email further explained that BMG has been accredited by the Better Business Bureau (BBB) since 2018 with an “A” rating, this company is a payday loan company and that should cause concern for anyone before they sign up.
Payday loans do serve an important role for people who have bad credit and have nowhere else to go to get an emergency loan.
But the payday loan industry has a bad reputation of getting people into even further debt to pay off interest rate fees that can exceed 200 percent. Their ubiquitous presence in black and brown low-income communities is especially painful.
As housing costs continue to rise in the Windy City and teachers and other low-paid staff such as teacher assistants, custodians, and crossing guards are forced to live in the city, this emergency loan industry can be a lifeline.
The BMG email for CTU members said their loan program allows members and retirees to borrow responsibly and repay the debt over time with a fixed, affordable installments regardless of their credit score and they will receive free financial coaching, counseling and financial wellness tools and programs.
A simple fixed rate that BMG offers of 35.5 percent on a $2k loan would translate into $710 in interest payment.
Tom Butterfield, a teacher at Peterson Elementary School, is very knowledgeable in personal finance. He spoke to the union about his concerns with promoting payday loans.
“Nobody should be suggesting a high interest loan is a good thing, especially to anyone with bad credit,” Butterfield told Second City Teachers. “It’s a bad idea. It makes their situation much worse.”
But where do people with bad credit go for an emergency loan?
CTU Vice President Jackson Potter addressed this issue at the last House of Delegates Meeting in June, but I cannot report out what was discussed during the meeting.
CTU did not respond for a public comment.
Illinois legislators passed a law a few years ago called the Illinois Predatory Lending Prevention Act that capped interest rates on short-term loans at 36 percent. The BMG loan is at 35.5 percent.
The fact is CTU members are hard up for money in this expensive city.
Teachers were able to work a PD day for an extra day of pay during the Thanksgiving weekend after many complained about the short paycheck during the holiday. They exchanged the PD paid day of work from a later date.
Many teachers want deferred pay in which their checks are even throughout the whole year so they get paid during the summer months.
There are teachers living on terrible loans during the summer. One financial expert said a 35 percent rate would be likely used for those wanting a loan without a credit score. Not having one of those scores would not qualify them for a loan. There are more fair rates with credit scores.
“I could only, in good conscience, recommend these loans to someone without credit or with absolutely terrible credit that needed this loan to feed and house their family,” said the expert, who wished to remain anonymous.
Butterfield said the CTU told him there will be an RFP (Request for Proposal) for better financial instruments to support CTU members.
“You need to educate your members on how to better manage your money,” Butterfield said.
The CTU is getting involved in the financing business by promoting certain products, such as whole life insurance and now payday loans. As the costs of doing business in Springfield continue to escalate, unions like the NEA and AFT have started promoting certain banking products that can result in high fees.
Butterfield said he is concerned that teachers who do not need this service will call up and get into further debt.
BMG works with the Texas AFT, the National Association of Retired Federal Employees, State Department, universities, k-12 schools and local governments.
The veteran middle school teacher said that the union should focus on financial literacy for its members. This is especially important now that more teachers have to work until the age of 67 under the Tier 2 Pension System.
“I don’t think the union should be in this business,” he said. “Instead we should be leading them to financial literature and advocates that will teach them how to be financially literate.”
He said it is important for teachers to understand how to build good credit, eliminate debts, and understand how compound interest works.
Butterfield worked with CPS to set up a much better supplemental retirement account or 403(b) for teachers with far reduced fees. CPS Teachers now have one of the best 403b plans in the country. He said the union should connect its members to non-commissioned fiduciaries who can help.
Chicago Public Schools is currently soliciting vendors for short-term loans. Butterfield hopes CTU and CPS agree on the same vendors and promote them together.
“It would be great if CTU and CPS could get on the same page instead of confusing teachers with these different vendors,” Butterfield wrote.
The nefarious payday loan industry has been especially aggressive in low-income black and Latino neighborhoods.
“No one wants to lend to someone who has $100,000 in student loans, so it was very hard for me to get a traditional loan,” Kesha Warren told WTTW.
Her short term payday loan of $1250 ballooned into a total payment of $3400 after two years.
Many teachers have huge student debt, and this limits their ability to borrow money.
The payday industry lobbied hard against the state’s new law against predatory lending, saying it would put many out of business and cut off a lifeline for borrowers with poor credit. The average payday loan rate is 297%. But the law was passed and signed by the governor in 2021.
The average payday loan rate in Illinois is 297%.
The payday lending industry relies heavily on hooking borrowers into a never-ending cycle of debt with hidden rollover fees, according to a report on WTTW.
“The business model is to keep the consumer in the loan, so when the bill comes due, the lender will offer an option to roll over the loan, refinance it, take out a different loan, a whole number of options,” said Brent Adams of the Woodstock Institute, who advocate on behalf of low-income communities and communities of color.
But what is most important is to address an unfair system that is exploiting the people.
“Unless we actually contend with these policies and institutional barriers, we’ll always be confronted with policies that preserve inequality,” said IL State Senator Jacqueline Collins who co-sponsored the Illinois anti-predatory loan law, according to WTTW.
I wonder what Gates cut from BMG is?
Does CTU get any kickback for promoting this?
If ctu wanted to help members; then discourage this predatory practice.
Remember the fees of Valic, which ctu dearly promoted to the loss of teachers?