A struggling economy has sent numerous consumers into the dark world of payday lending. The quick fix of “pay now, worry about the consequences later” has put many fraught Americans in debt deeper than they were prior to their payday loan experience.
Dorothy Bell, Vice President, Public Relations & Community Affairs at St. Louis Community Credit Union ($210 million, St. Louis, MO) says that the world of payday loans is a reality many have to face as an unfortunate by-product of the recession.
“Recently, consumer groups and government officials have been calling for payday lending reform,” she explains. “The presence of payday lenders is widespread these days, especially in neighborhoods where people lack quick and easy access to a financial institution. From a pure economic perspective, when costs of living exceed wages, we have the prospect for greater demands of small dollar amount loans.”
The latest media reports state that credit unions are the fastest growing hub for payday loans, primarily because credit unions offer a lower rate and more repayment flexibility than a payday lender.
The number of federally chartered credit unions offering payday loans increased from 244 last year to 390 and Debbie Matz, NCUA chairperson believes, "There's a real need out there.”
“At St. Louis Community Credit Union, we do what we can to help break that cycle by offering our Freedom ‘Payday’ Loan alternative,” Bell says. “This gives member-customers the opportunity to build their savings as they make payments. It offers a much lower rate, longer repayment terms and also features a saving component.”
St. Louis Community Credit Union requires that the member have a checking account in good standing that has been open for at least 90 days in order to be considered for its Freedom Payday Loan Alternative product.
Other credit unions offer a payday loan alternative with rate and repayment flexibility being a primary driver. Steve Weakley, President of Vons Employees Federal Credit Union ($320 million, El Monte, CA) told the Los Angeles Times that credit union payday alternatives offer a better rate than what the typical payday lender would charge.
"Even though it's a higher interest rate than we would normally charge, this is actually a less-expensive alternative,” Weakley says.
“Our member-customers have commented that they appreciate not having to pay back two to three times the amount borrowed--like with payday lenders,” Bell says. “There have also been numerous instances of member-customers being thrilled to find out they had built up a savings (as a by-product our payday loan alternative) to use when they had a financial emergency.”
Lower Rates, Longer Payback…and a Checking Account?
Where credit unions break away from the pack is actually beyond what is offered in the payday loan alternative. In addition to the lower rate and better loan repayment parameters, many credit unions back up their loan program with a special credit builder-type checking account.
For example, those who seek a Freedom Payday Loan Alternative at St. Louis Community Credit Union can also utilize other credit union tools to break the cycle.
“In addition to the payday loan alternative, we offer second-chance checking products, reloadable debit cards and credit building services in an effort to help break the predatory lending cycle for consumers,” Bell says. “All of these products are welcomed by our member-customers and help get them back on track financially.”
Second Chance Checking at St. Louis Community Credit Union allows the member to have a checking account aimed at rebuilding credit and assets. The account is similar to a typical checking product, but with a few limitations such as no ATM deposits and a longer hold on checks. After maintaining the account in good standing for six months, the member is eligible to mainstream to one of the credit union’s regular checking accounts.
“Now more than ever, consumers need options,” Bell asserts. “As a way to create financial capability, we invest time and resources into developing offices, as well as product and service offerings that cater to underserved populations.”
Credit Union Says That Education is the Key
Beating the payday lender at its own game is going to take awareness and education Bell explains.
“In addition to offering financial capability to consumers, education is also a key factor in deterring individuals from the payday lending path,” she explains. “St. Louis Community Credit Union has been offering free, financial education classes and seminars to the public since 2008. In working with our social service and community partners, we saw a need for financial education as a means for individuals to make better informed decisions when managing money.”
Bell says that the credit union has a full-time financial educator/community outreach specialist on staff who teaches a variety of courses to promote financial empowerment - from the pitfalls of payday lending to managing credit wisely.
Like many credit unions, St. Louis Community Credit Union’s educational and outreach efforts have touched and changed the lives of numerous members in peril. “We have a track record for success when it comes to financial literacy. To date, 15,000 people have been touched by our outreach efforts.”
If you are considering a payday loan or need assistance getting back on your feet, find a credit union and inquire about second chance or payday loan alternatives.
By Gina Ragusa