For Immediate Release
Senior Vice President, Woodstock Institute
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.