Borrow and Save
For too long we have seen the damage that Payday Lenders have caused in our community. Unfortunately, we see it every day. Typically, a member will realize they are going to be short of cash and needs a little extra money to make it through the month. Their credit may be tarnished and credit cards maxed out so they give a payday lender a try. The Payday Lender knows that if they can get the consumer hooked on their product, they can keep a steady stream of income, letting the cycle repeat itself. And since they do not face the same levels of regulations as other financial institutions, they are able to quickly “help” their customers. But the rates are steep. On average, payday lenders charge 400% interest annually and the average payday loan customer uses their services nine times per year.
- Nationally, there are more than two payday lending storefronts for every Starbucks location.
- The typical two-week payday loan has an annual interest rate ranging from 391 to 521 percent.
- The“churning” of existing borrowers’ loans every two weeks accounts for three-fourths of all payday loan volume.
- Repeated payday loans result in $3.5 billion in fees each year.
- Loans to non-repeat borrowers account for just two percent of the payday loan volume.
- The average payday borrower has nine transactions per year.
- If a typical payday loan of $325 is flipped eight times, the borrower will owe $468 in interest; to fully repay the loan and principal, the borrower will need to pay $793.
- The typical payday borrower remains in payday loan debt for 212 days of the year.
*Information courtesy of the Center for Responsible Lending
Credit unions have a long and proud history of helping members and it is why we are working to break the Payday Lender cycle by testing a new product: Borrow and Save. Borrow and Save is a small dollar loan product benefiting low-and-moderate income US consumers, as part of Filene Research Institute’s accessible financial services incubator. Peninsula Credit Union joins eleven other credit unions in testing the product’s viability with mainstream financial institutions over the next 18 months.
Introduced by the National Federation of Community Development Credit Unions, Borrow and Save increases consumers’ economic security by providing an affordable small dollar loan with payment terms that makes sense for them. A built-in savings component also enables consumers to self-fund their emergencies instead of borrowing money to handle them.
The idea is simple, rather than perpetuate a system of high interest loans, we set the loan up right, start the member on the road to savings and provide financial education. In the next 18 month testing period, we hope to help improve the lives of our most vulnerable members and provide a path to financial freedom, breaking the chains of payday lenders.
For more information, please speak to a Member Services Representative.