HARRISBURG, PENN. -
In March, Berks Community FCU in Pottsville and PA Healthcare CU in Sewickley became the 46th and 47th credit unions to join the Better Choice Program, developed by the PCUA to help low and moderate-income families manage their finances and meet their financial needs without resorting to high-cost products such as payday loans.
"We know there are people right on our doorstep that are using payday lenders, said Terry Shoemaker, CEO of the $45 million asset Berks Community FCU. "We felt this was a product that made sense not only to help them pay less for this type of service, but to hopefully in time become full-fledged members of our credit union."
Mike Wishnow, SVP at Pennsylvania Credit Union Association, said the Better Choice Program provides a fair alternative to the growing number of payday lending services in the state.
"There are more payday lenders in Pennsylvania than there are Starbucks," he said. "We wanted to come up with a way for credit unions to be part of the solution."
With backing from both the Pennsylvania Department of Banking and the State Treasury Department, PCUA has the means to offset credit union loans losses and to assist with marketing expenses associated with the program.
"This is unknown territory with some unknown risks," he said. "So what we have done is created a loan loss pool that participants who abide by the rules can use for reimbursement of loan losses up to 50%."
He said the State Treasury Department has invested $20 million into a credit union account and will donate the $130,000 in interest it collects at the end of the year to the pool.
The Better Choice Program includes several components that provide instant cash at a reasonable interest rate and built-in mechanisms that will help the borrower save money for future use.
For example, Wishnow said, the borrower who asks for $500 gets a loan for $575 at 18% APR, $25 of which goes toward the application fee and $50 (or 10% of the loan) which goes into an interest bearing savings account that cannot be touched until the loan is paid off. By the end of the 90-day term, the member will have paid $40.09 in interest and will still have $52.25 in their savings account.
The same loan from a payday lender could cost the borrower $450, he said, explaining that the average roll-over is seven or eight times. At $15 to $20 per $100 borrowed compounded every two weeks, people get trapped in a cycle of debt.
"Our program is designed to break that cycle by shifting people from using a wealth-stripping product to a wealth-building product."
The program also includes financial services that encourage members to use other low-cost alternatives to payday lending.
Employment verification and other loan decision criteria are determined by the credit union.
FOR MORE RESOURCES
Read more about payday loans and predatory lending by going to our website at cujournal.com and searching the following bolded terms in the archive:
Payday Loan, for a variety of stories about how CUs have tried to combat payday loans in their areas, as well as stories about how CUs have offered more consumer-friendly products and services to meet the same needs.
Predatory Lending, for a number of stories on predatory loan practices and how CUs have tried to steer members clear of them.
