The Payday Payoff

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RANCHO CUCAMONGA, Calif. - The old saw is "if you can't beat 'em, join 'em." When it comes to payday lending, however, credit unions have pursued a "join them and beat them" strategy.

As industry analyst for the California and Nevada CULs' Daniel Penrod noted, payday lenders have blossomed across the country as consumers, whether driven by convenience or ignorance of other options, flock to pay interest rates that can range from 100% to 1,300% just to get their money quickly.

For credit unions to offer a payday-lending alternative, they must have a complementary savings product "because the credit union's goal is not to make the debt worse. They need to control the debt and get consumers out of the cycle."

It is in offering the savings option where credit unions have differentiated themselves, in addition to considerably lower APRs.

One of the most successful payday-loan alternatives in the country has been pioneered by State Employees CU in North Carolina, which offers a Salary Advance Loan (SALO) program. SECU's Greer said CUs across the country should be "stepping forward" to offer alternatives to payday lenders.

"This is a tremendous opportunity," he declared. "Credit unions can offer members the short-term financing they need, but without the 500% APR. I'd like to see more credit unions step up. We know many members are using payday lenders. Credit unions must make it known they have a product that is a low-cost alternative. It won't have a dramatic effect on the loan-to-share ratio, but it is a dramatic need and is the right thing to do."

Where To Get More Info On This Program

Credit unions interested in more information on SECU's Salary Advance Loan (SALO) program can find it at www.ncsecu.org/Resources/Publications/PDF/Press/022206-SalaryAdvance.pdf

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