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Look out, payday lenders
New low-income credit union changes game for poor
Norma Hernandez was just 17 when she first walked into Seattle’s Express Credit Union. She and her husband had come to deposit his first paycheck from a grocery-bagging job.
It was all of $230, Hernandez says, but it was a start on building their future. The credit union later gave them their first credit card, lent them money to buy a car and, when they applied for a $3,000 computer loan, showed great respect, she recalls, in turning them down.
The loan officer sat them down and walked them through what a high debt-to-income ratio means — that their credit card balances were ballooning past their ability to pay — teaching the couple that “just because we can get credit doesn’t mean we should be using it,” Hernandez says.
It was a huge revelation, she says, for two people from poor families who had seldom used banks, much less had credit.
It’s an education and set of financial opportunities that Hernandez has shared with many others since she started at the credit union as a teller in 1999. Today, as its chief operating officer, she is leading a makeover that will vastly expand financial services to the poor and homeless in a way Seattle has never seen before.
On May 30, Express Credit Union, which was founded in 1934 for transportation workers, is formally flipping the switch on a new business model, changing from a regular credit union into the city’s first ever low-income credit union, one providing “community tellers” with regular hours at 16 different sites — including human services agencies and a homeless shelter — and low-cost loans, money wires and other services that give the poor an alternative to the high fees of the check-cashing and payday-loan shops that many use.
A person meeting with an Express teller at the YWCA’s Opportunity Place in downtown Seattle, for instance, can open an account with as little as $5 — the credit union is giving $10 to the first 500 new members who sign up — or apply for a payday alternative loan of up to $750 and walk away with a debit card loaded with the funds.
Where payday lenders charge up to 391 percent in interest and demand repayment in weeks, Express charges a flat fee of 15 percent and gives 90 days to repay. Other loans are geared to re-establishing credit, paying off debt, buying a car or even getting citizenship (a $675 loan that Express offers covers the federal naturalization application fee), all with a commitment to showing respect for and educating members, Hernandez says.
“I know that without opportunities I wouldn’t be where I am at. Somebody explaining to me without embarrassing me about how things work, and what steps to take, and forms of savings and the proper use of credit — it’s huge,” she says.
For a variety of reasons, up to 10 percent of the U.S. population doesn’t use banks — a market that Express is nearly alone in trying to reach. It will be one of Washington’s few low-income credit unions, a regulatory category that requires at least half the credit union’s members to have incomes at or below 80 percent of area median, or $47,200 in Seattle.
Express has nearly met the goal, with 47 percent of its existing 1,400 members at or below the mark, says David Sieminski, operations director of the credit union’s nonprofit arm, Express Advantage, which will arrange the community tellers’ hours at the sites of eight nonprofit partners, including the YWCA, Neighborhood House and Solid Ground.
The agencies, in turn, will provide financial literacy classes to help Express members and other clients learn to manage their money. The second time a person bounces a check, for example, he or she will be encouraged to take a course. In exchange, the credit union will refund the overdraft fee.
The idea to turn Express into a low-income credit union started with the Medina Foundation, which began studying the issue of the poor and financial services five years ago, says its executive director, Tricia McKay.
“We had a hypothesis that… traditional banks and credits unions weren’t reaching low-income individuals for financial services and, in that gap, predatory lenders were there and a lot of low-income people were falling prey to [them],” McKay says — at a high cost to what little money they have.
Besides payday lenders, check cashers take a large cut of a check’s value and money orders can cost as much as $5, says Pat Tassoni, a founding member of the five-year-old Thurston Union of Low-Income People, or TULIP, a low-income credit union in Olympia.
TULIP was one of many organizations that Medina consulted or studied across the nation, eventually deciding to take a bold step, McKay says: Instead of making a grant, as it normally would, the human services foundation would start a low-income credit union on its own — a difficult task that it was spared in part by finding Express, which was looking to expand beyond its roots serving bus and train workers and their immediate relatives.
Seattle’s Community Capital Development stepped forward as the project’s fiscal sponsor and, as it had done with TULIP, the Boeing Employee Credit Union put up $250,000 in starter capital and “incubated” the project, from converting Express’s information management system to offering assistance to remodel its Sodo storefront on Fourth Avenue S.
Brenda Kurz, Express’s chief executive officer, says it aims to sign up 1,200 members a year over the next two years and 1,000 a year after that — a goal made all the more urgent by the current economic recession. Though TULIP has been losing money, forcing it to draw down capital, Sieminski says there’s no better time to embark on fighting the high cost of being poor.
“People just need the opportunity to take the proper steps in their lives to move them forward,” Hernandez says, “without the doors closing just because [they’ve] made a mistake.”
Comments
First, I commend Express Credit Union for adding new choices for financial services into the marketplace. However, as someone who has been in the check cashing and payday lending industry for over 20 years, I would ask that the facts about our industry be represented correctly.
Express Credit Union charges $15 per $100 for their payday loan alternative, and then refunds $5 per $100 if the loan is paid. In Washington, payday lenders charge $15 per $100 up to $500 and $10 per $100 for amounts between $500-$700. Additionally, the loan lengths are different, which changes the APR’s, but not the dollar costs of the loans. This article compares the APR of one loan to the percentage fee charged of the other loan, rather than using the same comparison for both loans. Sure, the loan from the credit union is less expensive, but let’s at least compare them the same way.
Payday loan customers have bank accounts or credit union accounts, which is something that many seem to forget. If banks or credit unions would offer a more competitive product, then fewer people would choose payday loans. Right now, in many cases they are a more competitive option to overdraft fees, NSF fees, late fees, reconnect fees, which are all other forms of short term credit. A $100 loan from a payday lender is cheaper than a bounced check fee from Express Credit Union.
I’ve seen money orders cost $5 at banks, but not check cashers. Many area check cashers give the money orders for free. The majority of check cashing customers also have bank accounts, but choose our service because it’s more convenient. Many people do business with more than one financial service provider, just like they shop at both grocery and convenience stores.
Offering more financial options is great, but it can be done without misrepresenting others in the financial services industry.
Okay, let’s compare them the same way. (I’ve also worked in the industry.) To say they charge up to 391% interest is to assume that they are getting a 14 day loan. Most people aren’t broke 14 days before payday, they’re broke a day or two before payday. So when you look at the APRs you print up for the loans that are just a day or two before payday the APR is in the thousands. So to say “up to 391%” isn’t accurate, you’re right, it’s actually much worse. But I would agree, to compare a $500 day-before-payday loan at 5,475% interest would seem a bit unfair. But to compare the loans at two weeks is exactly fair because those are the loans that get renewed every payday sometimes for years.
So whether you’re comparing a flat fee of 15% every two weeks for 12 weeks (84 days) vs. a flat fee of 15% for 90 days ($90 vs. $15 per hundred) or an APR vs APR (391% vs. 61%) payday lenders are still offering a rotten deal.
There’s also another overlooked fact. If I have a payday loan of $750, I’m paying $225 a month just to keep treading water with the same amount of debt owed. The payday loan is designed to keep me coming back indefinitely, that’s what the payday lender hopes I will do.
The Express loan is designed to get out of that trap. For $287 a month, I’m paying down the debt and will be out of debt after 3 months, that is what the credit union is hoping that I will do. So you’re right, in some ways it’s totally comparing apples to oranges.
Yes, they give money orders for low-cost or for free. But that’s usually only when you cash your check there, so it’s a little like saying “FREE COFFEE!—when you order the $10 breakfast special.” There is also a fee to them (as well as general cumbersome need for liquidity) for ordering cash, so the more money orders the check-cashers give out the less cash they have to order.
And if the client had a checking account, any checks lost or not cashed would not be money out of their pocket. With money orders any lost money orders are a benefit to the company that issues them, unless the purchaser is for one, aware it was never cashed; two, has the small stub receipt; and three goes through a complicated refund process written in small print. And if you find something on your credit report that you paid off three years ago with checks, you can get records from your bank to prove it. If you paid it with money orders and have moved a couple of times and don’t know where your little stubby receipts are, forget it, you’ll wind up paying it again if you ever want it off your record. Then it’s those blotches on your record that keep you from getting more traditional credit options offered to you.
I am inquiring about the low-income loan you have on your website. If you could contact via email with any information on how to obtain a loan I would greatly appreciate it. Thank you and have a safe and wonderful Labor Day weekend.
Thanks,
Debbi Dunn
It is amazing to me to note the contradictory positions of our “conservative” and “fundamental religious” friends. If you are religious and read my bible, the Five Books of Moses 1Y0-A05, there are frequent mentions of the evils of usury and pay day lending can only be defined as usury! There should be a law against usury and in many places there is/are laws prohibiting interest rates that are punitive 1Y0-A08. I would suggest that if we are truly interested in helping people who are down on their luck and need help, the model of the Hebrew Free Loan would be worth emulating in our communities! 1Y0-A09 Google it and learn how those truly interested in helping their fellow citizens found a system that worked!
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