Groups Provide Payday Lending Alternatives
posted 4:49 pm Sun January 13, 2008 - Richmond, Va.
Noll's Langley Federal Credit Union is one of a growing number of credit unions, churches and nonprofit organizations that are providing low-cost cash advances as states like Virginia grapple with a growing payday loan industry and those left drowning in debt because of it.
As of Friday, legislators had filed more than a dozen bills to either repeal the 2002 law that brought the industry into Virginia, reform it or cap the annual interest rate on the loans at 36 percent.
Legislators balked at a rate cap last year because payday lenders said it would put them out of business and leave Virginians with nowhere to turn for cash in a fix. Industry opponents hope the new alternatives will help persuade lawmakers to get tough on payday lenders.
"The situation is that payday lenders can advertise and have a store front in every strip mall in the state because they collect these large sums, whereas the alternative providers don't have the profit to go advertise anywhere and everywhere," said Daniel Morrisey, volunteer treasurer of Queen of Peace Arlington Federal Credit Union.
Langley Federal Credit Union was one of the first in the state to offer payday loan alternatives. It has jumped from about 100 to 200 cash advances a month in 2004 to between 600 and 800 now, said Noll, senior vice president and chief marketing officer.
At Langley, borrowers can get loans up to $1,000 at 18 percent interest. Morrisey's credit union offers loans of up to $600 at 16 percent interest. Most require fees to be a member of the credit union.
Payday lenders are allowed to charge $15 for every $100 loaned up to $500. The loans usually are paid back in two weeks at the borrower's next payday, pushing annual interest rates to around 390 percent.
The lenders argue that's not a fair assessment, because the $15 is a fee that doesn't accumulate. But opponents say it is when borrowers take out one loan to pay off another that they spiral deep into debt.
Payday lenders have said they couldn't survive on a 36 percent rate cap - charging just $1.38 for a $100 two-week loan.
Noll said that's what separates credit unions from payday lenders.
"A credit union typically, almost always, will have the person's best interest in mind as opposed to making a profit off the person," Noll said. "We're a not-for-profit organization and we truly exist to provide good service and act in the best interest of our membership."
Unlike in some other states that have had legislative faceoffs over payday lending, the Virginia Credit Union League has not taken a side on the issue and does not plan to, said Lewis Wood, a spokesman for the organization that represents nearly all of the state's more than 200 credit unions.
Until recently, the chief lobbyist for the credit unions also lobbied for the trade group representing most of the nation's payday lenders. Wood said that wasn't the reason why his group hasn't taken sides. He said it was simply because the fight doesn't affect credit unions.
Churches and nonprofits have come out swinging against payday lenders, though, and are leading the effort to cap the interest rate at 36 percent. Many are working to provide payday loan alternatives.
Two Richmond-area United Methodist churches have joined with the Virginia United Methodist Credit Union to create the Jubilee Assistance Fund. The churches raise money, which is put into a savings account with the credit union that can be used as collateral to back a small loan from a church member.
Most credit unions offer financial counseling, but Jubilee Assistance Fund borrowers are required to get it. The program is in its early stages, but organizers hope it will someday serve as a model for churches nationwide.
"It takes the church out of the lending business, and it helps the person get a hand up rather than a hand out," said Carol Mathis, chief executive officer of the credit union.
Nonprofit groups such as Goodwill also are working on programs to help people who need a short-term small loan.
Industry supporters say while those alternatives exist, they're not necessarily available to everybody.
Most credit unions cater to specific groups, like the military or a county government. Only about 30 serve entire communities.
Like churches, credit unions require borrowers to be a member - usually for several months - before lending them money, which payday lenders argue doesn't help when the car breaks down and rent is due the next day. Borrowers can walk into one of the nearly 800 payday lenders in the state, show identification and proof of income and be on their way in about 15 minutes.
Attempts to come up with alternatives just proves payday loans are needed, said Jamie Fulmer, spokesman for Advance America, Cash Advance Centers Inc., the nation's largest payday lender.
In 2006, about 434,000 people in Virginia took out nearly 3.6 million loans worth $1.3 billion, according to the state Bureau of Financial Institutions.
Fulmer said his company welcomes the competition from credit unions, churches and nonprofits, but he doesn't believe they can offer what his customers need: small amounts of cash quickly.
"Every product is different and every consumer should very carefully consider the alternatives they have and make the decision that's best for them at any given time, but we don't think it's the government's place to dictate what those products must be," Fulmer said.
Latest Comment on Groups Provide Payday Lending Alternatives
grant
3:13 pm on 02/28/08
This guy is trying to sell good will? I don't think so. He is trying to sell the idea that he is not in it for the money is more like it. He is against payday lenders because they are taking away his credit union's profits. The credit unions get %60 of their profits from bounced checks and overdraft fees. Payday stores prevent this from happening. They are a great service that some people can't figure out how to use. Still others who don't even use the payday loans, are buying into the myth that they are bad and are trying to take them away from those of us who have no other option for quick cash. Here is an article that shows the benefits of payday loans: Payday lenders are the perfect target for politicians that want to seem compassionate. After all, a $15 fee on a two-week $100 loan amounts to an APR of 390% if the loan is rolled over for a year (accruing $15 every two weeks). What could be more evil than charging poor people 390% interest, right?
A recent study by the Federal Reserve Bank of New York suggests otherwise. As reported in the March issue of Reason Magazine, the study found that the citizens of two states where payday lending is banned "bounced more checks, complained more about lenders and debt collectors, and filed for Chapter 7 bankruptcy more often"1. Comparing payday lending to other options, the Community Financial Services Association of America noted that a $100 bounced check garners a $54 fee (equivalent to 1409% APR) and a $100 credit card balance can garner a $37 late fee (equivalent to 965% APR). As the study's authors write, "Forcing households to replace costly credit with even costlier credit is bound to make them worse off".
Why not leave these companies alone and focus on things that really matter, like the education crisis in this country. We are the most powerful country in the world, and we are one of the dumbest, it is not going to last if we are not smart enough to make it last.
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