Released: September 20, 2006

Breaking the cycle of payday loans

Source: By Sue Kirchhoff, USA Today

Tellers at the North Carolina State Employees’ Credit Union noticed a troubling change several years ago: The first people in line on payday were high-cost lenders, waiting to cash checks from credit union members. A glance at the records showed thousands of credit union customers were turning to payday outlets for small loans to be repaid with their next paychecks. Such products typically carry annual fees of 300% to 1,000%. Many strapped borrowers repeatedly roll over the loans, sinking deeply into debt.

To wean its members from payday providers, the State Employees’ Credit Union (SECU) in 2001 introduced a short-term loan that has a 12% annual interest rate, a maximum limit of $500, requires borrowers to repay via direct deposit of their paychecks and put 5% of loan proceeds in savings accounts. Each month, more than 40,000 people use the product, which has a maximum 31-day term. Overall, members have accumulated $10 million in savings accounts.

“We wanted to find a way to get our members out of this trap,” says Jim Blaine, SECU president. “We have a couple of our vice presidents using it, a vice chancellor of a university. ... It’s not just a poor person’s product.”

The SECU is one of a growing number of credit unions now offering products specifically designed to combat payday, or cash advance, lending, which soared in the 1990s even as the nation experienced record economic growth.

Read Full Article: Breaking the cycle of payday loans