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For Immediate Release
Contact:
Marva Williams
Senior Vice President, Woodstock Institute
(312) 427-8070
Credit Unions Offer Affordable Emergency Credit
at a Fraction of the Cost of Traditional Payday Lenders
Credit unions can offer sustainable, affordable
short-term credit at a faction of the cost of traditional payday lenders, says
a recent Woodstock Institute report.
Entitled Cooperative Credit: How Community Development
Credit Unions are Meeting the Need for Affordable, Short-Term Credit, the
report evaluates the emergency loan products offered by six credit unions
participating in a joint program offered by the National Federation of
Community Development Credit Unions and JP Morgan Chase.
Unlike traditional payday lenders, which charge
triple-digit interest rates for emergency loans and structure them in a way
that makes it difficult for borrowers to meet anything more than the minimum
interest payment, several credit unions are offering loans that are lower in
cost and offer a number of asset building components.
Many of the loan products required the borrower to
deposit a portion of the periodic loan payment into a savings account to help
build a cushion against future financial instability. The participating credit unions also worked
to develop long-term relationships with borrowers, having learned that
longer-term members had considerably better repayment records than new members.
“Increasing the number of lenders competing to provide
affordable short-term loans is critical to driving down the cost of credit,”
said Marva Williams, Woodstock Institute
senior vice president.
Several credit unions also used the credit reports of new
borrowers to educate their members and help them identify any errors on their
report.
“Adopting consumer protections to prevent over-borrowing
and encouraging or requiring financial education contributes strongly to the
success of the product,” says Williams.
Participating credit unions include ASI FCU, Bethex FCU,
Faith Community CU, Northeast Community FCU, South Side Community FCU, and West
Texas CU.
Woodstock Institute, founded in 1973, is a
nationally-recognized resource on credit and capital needs of low-income and
minority communities. The Institute engages in applied research, policy
development, and technical assistance to promote community economic
development.
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