Chicago Residents Design Better Small Dollar Loans

At first the room was a bit tense. The 10 Chicagoland residents who joined CivicSpace for its first community design session all showed up early and sat spread out in a circle quietly waiting for the event to begin. The research team played music, and soon the room eased as everyone ate dinner and laughed over introductions and jokes about what brought us there (the stipend was a popular choice). Everyone attending the session had recent experiences, good and bad, taking out small dollar loans, and they wanted to help design better options for their neighbors. With that common goal in mind and acknowledging how uncomfortable talking about finances with people you’ve just met can be, the research team shared the questions they were hoping to answer that evening: Where do you go for loan information you can trust? And, what features make small dollar loans more useful?

Within the first design activity, residents immediately shared stories pointing to the ways lenders can connect to borrowers and provide better features, and provided insights for policy that could make borrowing during a time of need an overall safer experience financially.

This event marks the beginning of several community engagement initiatives that New America Chicago and The Chicago Community Trust will facilitate over the next few years as part of the CivicSpace project. Funded by The Chicago Community Trust, this work is the culmination of years of planning as was initially started as a way to help address the enduring racial and ethnic wealth gap in Chicago. Like its name suggests, CivicSpace allows community members, advocates, and politicians to come together to ensure policies designed to address poverty and build financial and economic stability truly work for the people. The goal is to amplify community voice and intentionally engage community residents in designing government policies and services that work better for communities. This pilot event demonstrates one process to empower residents beyond sharing their experiences, toward partnering and co-designing policy ideas and research.

Exploring the pilot community design session on better small dollar loans as one example, this participatory research process brief will detail the various stages that led to the event, the findings elevated in this type of engagement, along with some priorities and challenges for inclusive and effective human-centered engagement, and opportunities moving forward.

Since the 1980’s when they first became legal in Illinois, small dollar personal loans with interest rates as high as 400 percent had proliferated in Chicago, particularly in communities of color (1). In 2020, New America Chicago joined together with Woodstock Institute and The Chicago Urban League to create a new coalition focused on eliminating predatory lending, with an eye towards identifying just how much wealth these exorbitant loans had stripped out of lower income Black and Latinx communities. Shortly after, Illinois passed the Predatory Loan Prevention Act (PLPA) in 2021 capping the interest rate for many consumer loans at 36 percent. While small dollar loans are still legal, some types of loan stores closed that were not willing to abide by the legislation.

In the winter of 2021, New America Chicago along with Woodstock Institute and Chicago Urban League conducted a community survey to learn more about the impact of the PLPA and peoples’ remaining needs. Because people still have emergencies or struggle to make ends meet between checks, New America Chicago is particularly interested in making sure Illinois residents have other more affordable options by building a deeper understanding of what people are looking for in alternatives to predatory loans and what is missing in the current marketplace to help bridge financial need for Chicago residents.

Building on the survey data and past community member interviews as a baseline, the community design session facilitates an opportunity to engage creatively and elevate specific solutions that reflect residents’ priorities and daily contexts. Although the PLPA represents a necessary improvement in financial policies that protect residents, people still have cash emergencies or inconsistent cash flow and some need loans to make ends meet. Policies can have unintended consequences, and continuous engagement with residents will offer insights for how policymakers and lenders can help bridge those gaps and create safer alternatives that help communities grow wealth. Through a community design session, residents have a greater opportunity to challenge existing research, contribute their understanding of the issue, and offer solutions to the most pressing challenges.

In September 2022, CivicSpace, a New America Chicago initiative at The Chicago Community Trust, hosted a community design session with ten residents who had taken out small dollar loans within the past two years. Attendees engaged in three design activities, meant to 1) develop a shared understanding of the topic and trusted messengers, 2) generate a list of best and worst loan features according to residents, and 3) choose ideal loan features and vote on its effectiveness.

Equity Considerations

The event was hosted at The Chicago Community Trust, since it provided a transit-accessible central location for the participants. Residents were provided a stipend for participation, as well as a transportation stipend. COVID-19 precautions included reserving a large room where participants could physically distance themselves, wearing masks, and providing proof of vaccination or a negative COVID-19 test.

The team paid special attention to ensuring that participants had a full understanding of the purpose and goal of the event, as well as how their participation could help inform policy by providing a research agreement and short pre-reading document. The research agreement listed out what participants could expect on the day of the event in accessible language, like speaking in front of a group about finances, though participants were also encouraged to share only as much as they were comfortable.

Participants were also provided early access to survey results about the impact of the PLPA before the event to review and were provided an overview of all pre-reading documents at the start of the event as well. The participants shared their feedback at the start of the event on how they did or did not relate to the survey results. This helped the research team and participants create a better shared understanding of relevant terms and their contexts in order to move toward co-design.

Research Timeline and Design

In the table below, you’ll find an overview of the general research process timeline CivicSpace undertook and some considerations for each stage.

Many of the participants in the community design session related to each other through stories and shared experiences. They were able to react to each other's ideas and needs, and represent their own perspective. The research team introduced the discussion items, listened to resident priorities, cleared up misunderstandings, and adapted the activities in real time, but it was the residents who led the conversations. This generated a productive and solutions-centered conversation, focused on the potential of alternative lending and what the community wants and needs for safer loans that help build wealth.

Traditional engagement methods like public comments at City Council meetings, resident interviews, and surveying can provide good general insights and reactions to information about issues as they are now, and how people might think or feel about the issue as presented. The community design session format allows residents to collaborate together to build better solutions than any one person could design. This allows for a more comprehensive understanding of how people engage with a policy, or don’t, in their everyday lives and why. Understanding those barriers and challenges on a deeper level helps to inform more aspirational and potentially more effective policy ideas that improve upon the status quo.

Limitations and Potential for More Inclusive Research

Using the resources available to them, the research team aimed to maximize the inclusivity and accessibility of the event. However, there is some room for improvement toward a more equitable session. Hosting design sessions within neighborhoods, rather than a central location, can help people with limited mobility have an opportunity to attend the event. Also, hosting the event in multiple languages and partnering with an interpreter would grant non-English speakers the ability to contribute and participate. The team considered running the session in two languages simultaneously, but recognized this co-design process required more direct conversation and real-time feedback. In order to avoid a much longer event that might inequitably preference English speakers and only include Spanish speakers in a limited way, the team instead opted for holding a separate event that centers Spanish speakers in the coming months. Offering on-site child care could help caretakers participate as well. For insurance reasons, rather than offering on-site child care, the team chose to increase the amount of the stipend for participants to help cover the cost of child care or transportation for those with more complex needs.

The research team conducted outreach through an existing listserv, meaning many of the participants had some prior engagement with CivicSpace research projects. In this case, because the topic area was uniquely sensitive and because this was the first time conducting such a session for the team, it was important that participants already had some knowledge and comfort with the organization.

The listserv included people who had been recruited through local nonprofits, newspaper ads, Craigslist ads, a website with resources for the local community, and social media. However, to expand and diversify the recruitment pool, outreach could include neighborhood flyering, local ads, and phone calls to increase the reach of the event to those with less digital access or literacy.

The process and policy findings of this research have the potential to inform and improve alternative lending through pilot programs with philanthropic partners, the state of Illinois, and lending institutions including nonprofits (CDFIs), credit unions, banks, and fintech companies. The findings can help identify research priorities, policy ideas with the most potential, and serve as a knowledge-base to advance or interrogate resident-identified solutions.

Community design sessions can serve as one model for uncovering more insights on how stakeholders might use or act on findings. Additional analysis and review of the policy barriers or facilitators related to providing alternative loans and connecting residents to them would help uncover existing inefficient or unproductive economic policies.

The CivicSpace team is currently pursuing the next steps of this research—which are likely to include:

• Hosting more community design sessions within neighborhoods hit hardest by predatory lending, which could surface unique challenges and place-based perspectives.
• Bringing lenders and borrowers together in one room to co-design more effective loans.
• A revised survey on small dollar loans that incorporates the suggestions, insights, and language used by residents at the community design session.
• Prototyping and testing an example loan product, which incorporates resident-generated loan features from the design session, with lenders and borrowers to gather their reactions to new lending models and identify policy barriers and levers to improve access.

Community design sessions contribute useful findings and information when the event is focused on a specific problem or policy. That said, each participant can interpret and relate to a tangible policy in very different ways. In this process, participants can bounce ideas off each other, come up with ideas that could meet different people’s needs, learn more about what’s popular, and share a different depth of information that includes social perspectives, rationales, and behaviors. This type of research allows another framework and lens from which researchers, organizations, and stakeholders can identify policy disconnects and gaps to make sure solutions to social issues better meet residents’ expectations and needs.

Ensuring public policies make life easier rather than harder for low income communities and communities of color requires extra thoughtfulness. Listening to how policies actually impact individuals and going back to the drawing board to make sure public policies are responsive to the different experiences of community members is essential to good government. This session led to invaluable insights that will inform the Trust and New America Chicago’s work going forward. We expect to build on the lessons learned and replicate the process in additional areas of work that are important to the local community. Through our work with CivicSpace, we remain committed to continuously improving resident engagement and creating opportunities for residents to create their own solutions to economic inequity. The community design session on predatory lending is just the start.

Notes

(1) Adell, Meegan Dugan, Kathie Kane-Willis, Spencer Cowan, Hala Kourtu, and Vanessa Rangel. “Ill-Gotten Gains: Predatory Lending and the Racial Wealth Gap in Chicago.” New America Chicago, 2022. https://www.newamerica.org/chicago/reports/ill-gotten-gains-predatory-lending-and-the-racial-wealth-gap-in-chicago/.