Washington Post: CUs fill void when payday lenders leave

WASHINGTON (7/29/08)--Credit unions in the Washington, D.C., area are filling the void left by payday lenders who vacated the city after interest rates in the District were capped at 24% in January, says Saturday's Washington Post.

The article describes how Treasury Department FCU helped Stephanie Vann, a single mother, with a $500 six-month loan at 16% annual percentage rate--far lower than the typical payday loan rate of 300% and more. The credit union loan cleared her payday debt and put her on her feet. She now has a checking account at the credit union.

The Post noted that at least half a dozen credit unions are attempting to use payday lending alternatives as a tool to improve financial health of borrowers and that the credit unions' programs could be key in making the district's new interest-rate cap work without unintentionally harming low-income borrowers.

There's still a long way to go. The Post notes that "stretch pay" payday lending alternatives offered at 43 credit unions nationwide have issued 8,656 loans, with a few hundred made in Washington, D.C. That compares with 260,000 loans worth $125 million made by the two largest payday lenders in the district.

Jennifer Porter, chief advocacy officer at the Maryland and District of Columbia Credit Union Association, told the Post that district credit unions' willingness to pick up the small loans is actually a convergence of two trends--the district's move to cap interest rates charged by payday lenders and credit unions' already-in-progress payday loan alternatives.

The article also mentions Andrews CU, Clinton, Md.; CUNA Mutual Group; the Center for Responsible Lending; and HEW FCU, Alexandria, Va.

courtesy of cuna.org