Consumers in Washington D.C. have apparently flocked to credit unions since the district outlawed payday lending last year. Payday lenders whined that lending without 300% APRs was utterly unaffordable, but credit unions are proving that it’s possible to make long-term, low-dollar loans with interest rates as low as 16%.
The credit unions’ products vary, but generally they are loans of $300 to $1,000 with an annual percentage rate of up to 18 percent. Unlike payday loans, in which borrowers sign over part of their next paycheck for the cash advance, the credit unions’ new products have longer terms, from thirty days to a year.
Vann, 43 and a former clerical worker who is pursuing a career in TV production, got a $500 six-month loan from the Treasury’s credit union in January, at a 16 percent annual percentage rate. The money cleared her payday debt and put her on her feet. Now she has a checking account with the credit union.
“Credit unions were created to offer credit to people with modest means,” said Leslie Parrish, a senior researcher at the Center for Responsible Lending. “So, historically, it’s very much in keeping with their mission.”
It’s like stamping out weeds and watching adorable kittens grow in their place.
Credit Unions Slowly Fill Void As Payday Lenders Leave D.C. [The Washington Post]
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(Photo: Dr. Hemmert)