Those who leap to the defense of payday lenders often shout “but there is nowhere else for poor consumers to turn!” Not in Washington, D.C., where payday loan rates were capped at 24% in January. Since payday lenders are able to charge much higher interest rates elsewhere (think well beyond 100% interest), they are leaving.
Into the void flows the market, and credit unions are now offering small-dollar loans at interest rates of up to 18% to cash-strapped consumers. The loans also have longer terms. Payday loans typically come due in 15 days, and consumers pay extra to “roll over” into another loan. Small-dollar loans from a credit union may have a term from 30 days to a year.
Why are they doing this, and how can they?
“It’s not something we really make money on,” said Suzanne Curren, director of member education at Andrews Federal Credit Union. “Our intent is to get people in the door and introduce them to traditional banking products.”
What a concept! Offer something people want to encourage them to become a customer! It sounds like a damned decent alternative to payday lending.
Credit Unions Slowly Fill Void As Payday Lenders Leave D.C. | Washington Post (via Consumerist)