MEDFORD, Wis. - Peoples Choice Credit Union here has introduced a solution to combat payday lending–Peoples PAL (Payday Alternative Loan).
“At Peoples Choice Credit Union, we feel it is important to give people a better choice,” said Matt Selke, president and CEO of the 4,200-member credit union. The average payday loan store charges fees ranging from $20 to $30 per $100 borrowed, which must be paid back or rolled over every two weeks, Selke said.
“I see people rolling over frightening sums of money with 500% rates of interest. This is where PAL steps in and provides an alternative that can make a difference for many people,” Selke said.
Selke explained that at the average payday loan store, to borrow the average amount of $300 for 16 weeks (the average rollover period) at $20 per $100 borrowed, the finance charge is $480, which is an APR of 520%, bringing the total repayment to $780.
PAL APRs can be 50% to 60% less than normal payday lenders, and gives the borrower 30 days instead of 14 to repay, Selke said.
Peoples Choice CU is using software that allows for a faster loan process. Applications can process in about 10 minutes, just like the average payday loan store, Selke noted.
PAL’s goal is to combat the predatory practices of payday lending by offering up to $500 to pay off a current payday loan or to cover unexpected expenses. The fee is $9.25 per $100 borrowed with up to 30 days to repay. If needed, borrowers may rollover the loan up to three times.
Designed To Help People
PAL was designed to help people with their immediate financial need, and get them into the habit of making regular payments, and then shift them to borrowing with traditional, lower-cost loans, Selke said. As part of this transition, after the PAL program is completed, the Next Step Loan provides a bridge between the payday loan and a traditional loan. The Next Step Loan offers six months to repay and reports to the credit bureaus to improve credit scores.
“There is a strong emphasis on The Next Step Loan,” Selke said. “We are in a unique position that we have an opportunity to educate our members. Our product allows us really look at their whole financial situation. We are putting a strong emphasis on education. The success is when you can educate your membership.”
Peoples Choice CU is part of REAL Solutions, a statewide credit union program to combat predatory financial practices. Credit unions meet consumers’ immediate needs for transaction services at more reasonable prices while offering financial resources and guiding consumers through the steps of opening a basic deposit account, building creditworthiness with small loans, and over time, building wealth.
“Payday lending is a national and local concern, with payday lending locations in Wisconsin outnumbering McDonald’s,” Selke said. “It’s a $40-billion industry, with more than 22,000 outlets.”
So far, the $15.7-million People Choice CU has written 10 PALs, which is much higher than their goal of five for this time period.
“It’s exceeded our expectations,” Selke said. “It just shows percentage-wise that demand is there. I believe in the next three to five years, all financial institutions will be offering some kind of fast-cash loans.”
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