Bank Awards $400K To Nat'l Federation
JPMorgan Chase said last week its charitable foundations have awarded a $400,000 grant to the National Federation of CDCUs to help create credit union alternatives to the high-cost payday lenders that are proliferating around the country.
Under the program five community development credit unions will be chosen by the Federation for $50,000 grants (the other $50,000 will be used by the Federation to manage the program), with $25,000 to be dedicated to loan loss reserves and the rest for financial literacy training and counseling and other costs.
The funds will be awarded to CDCUs in Illinois, Texas, New York and other states where the banking giant has a presence, according to Clifford Rosenthal, executive director of the federation.
Over the past few years credit unions have targeted payday lending as one area where they can pose as a viable alternative to traditional payday lenders, who often charge annual interest rates amounting to 500% or more. As many as a dozen credit unions have stated their own payday, or short-term, loan programs over the past two years to help cash-strapped members.
"I think this is an important step in our ability to intervene in some of these communities," said Rosenthal. "We've seen an explosion of these payday lenders across the country the past few years and it's been painful for our members to watch. They don't have the resources to compete and offer alternatives."
One of the grants will go to North Side FCU in Chicago, which has already developed a successful payday lending program of its own. That program will be used as a model for the others, according to Rosenthal.
"These are generally short-term emergency loans for people with impaired credit, on an expedited basis," said Rosenthal. The $25,000 to be reserved for loan losses are for the expected increase in delinquencies and charge-offs. "Based on North Side's experience, no doubt losses will be higher," he said.
Applications for the grants should be sent in to the Federation by July 20 and the awards should be announced around Mid-October, said Rosenthal. The programs are expected to get off the ground around Jan. 1, 2005, with the federation to study and analyze them for broad dissemination for about a year. "We're talking to some of our members and we think it will be a popular program with them," he said.
The grant was provided through the JPMorgan Chase and Bank One foundations. The two banks are in the process of merging.