by Ron Daly
I recently learned about "Borrow and Save", a program started in Baltimore by the Neighborhood Housing Services, banks and the FDIC. The program allows underserved consumers to borrow as much as $1000 at an 8% interest rate, but requires that they go through a "financial fitness" class to get the money.
This story from WAMU in Washington talks about one consumer who has already been helped by this program.
"I grabbed the number as soon as I seen it. I said ‘I can’t believe this is happening.' This is what I want, way better than the alternative was," says Witherspoon.
The alternative was a cash advance loan with a double-digit interest rate. Witherspoon says he did that before and it took about three years to get clear of all the repayments...
Witherspoon used his loan to pay some bills and move to a safer neighborhood with his wife and grand-kids. But he says the financial counseling was more valuable than the cash. One lesson: pay yourself first.
"So now I snatch $40 out of my pay no matter what going to a savings account just to make sure I got a little extra that I don’t need or don’t touch. That’s a plus for me," he says.
Music to a former CFO's ears.
Here's the cold, hard truth - folks in underserved/underbanked areas that take on payday loans aren't "borrowers" so much as "victims". The rates are ridiculous (650% APR, in some cases), the terms are ridiculous (loans rolled over after the initial period, which many lawmakers are seeking to end), and borrowers who are barely getting by are finding themselves further away from financial stability as a result. A little information goes a long way in getting folks who previously thought financial management was unattainable on the right path to recovery and eventual prosperity.
I know there are community CUs and specialty CUs that cater to folks like Mr. Witherspoon (mentioned in the story above), and if they have programs like this I'd love to hear more about it. I think CUs that offer programs/packages such as this are doing good work, work that should be mentioned and applauded. If your credit union offers similar programs and is fighting hard against the pull of cash advance and payday lending, let us know. We will devote a story to your credit union's anti-payday program and give you the credit you deserve.
Your thoughts and opinions are welcome, as always, in the comments section.