Posted on Fri, Feb. 16, 2007  
 

If family can’t help, credit unions good alternative to payday lenders

By WARREN BOLTON
Associate Editor

GOT AN EMERGENCY and need a couple hundred dollars to get by? Don’t turn to payday lenders.

They aren’t the saviors they pretend to be. They charge an annualized rate of 391 percent interest and hope you can’t pay on time so you’ll keep renewing your loan and paying new fees.

Fortunately, claims that there aren’t any alternatives for consumers who need small, short-term loans are greatly exaggerated.

I called the South Carolina Credit Union League. Just as I anticipated, I found that credit unions — which can’t charge more than 18 percent interest — are a far better deal than the legalized loan sharks our state allows to prey on borrowers.

Frankly, just about any alternative is better than payday lenders. Ask your family or a good friend for help. Some companies will extend advances on pay to help employees get out of tight spots. Using a credit card would be cheaper than going to a payday lender, even if the interest rate is in the upper-20 percent range. It’s even cheaper these days to use finance companies.

The Credit Union League conducted a quick, one-day survey of some of its members recently. It asked about products credit unions offer that could be used as possible alternatives to payday loans. The results from 21 credit unions showed they offer small loans that average $250. The minimum amount that can be borrowed ranges from zero to $500. The interest rates range from 9 percent to 18 percent. The average rate is 16.26 percent.

Some have programs to help people get out from under payday loans. Most have been making small loans for years, since well before payday lending became the scourge it is. The credit unions stressed that their primary goal is to help people do a better job of managing their finances and avoiding debt traps.

Here’s what I learned from the CEOs of a few credit unions:

• Carolina Trust Federal Credit Union offers micro-loans up to $500 and gives members up to six months to repay. There is no credit check, but borrowers must have been on the job for six months and have direct deposit. The credit union once catered to employees at large industrial and manufacturing companies, but now has a community charter and serves residents in Horry, Georgetown, Williamsburg and southern Florence counties. “We do quite a few of these and we promote them in our branches,” said president and CEO Jerry Miller. The program began 10 years ago, he said.
  
  
• Family Trust Federal Credit Union has long offered loans aimed at helping families in need. In the late ’70s, it served thousands of employees at textile and industrial plants. People could get a line of credit to buy tires, pay taxes or even go on vacation, said president and CEO Lee Gardner. Family Trust will soon begin offering a new loan product similar to a payday loan, with one big difference: It won’t be more than 18 percent. The program will have a savings feature: 10 percent of what members borrow would go into a savings account and can’t be withdrawn until the payday advance is paid off. “There’s a forced savings habit in there,” Mr. Gardner said.
  
  
• Founders Federal Credit Union offers a range of products and services to help customers. It has no minimum loan amount. “We make lots of loans for folks to pay electric bills. We make lots of loans to buy groceries,” said CEO Bruce Brumfield.
  
  That said, Founders’ aim isn’t simply to get someone out of a tight spot. It prides itself on helping members understand their finances so they can better manage their money and avoid trouble, Mr. Brumfield said. Founders employs three full-time counselors who give free guidance. At any given time, about 300 to 400 members are in the program, which has served thousands over the past 12 to 13 years. The idea is to help people learn why they are struggling so they can correct their habits. “We believe it is an investment in our membership,” Mr. Brumfield said.
  
  Founders has locations in Chesterfield, Chester, Lancaster, York, Spartanburg, Cherokee and Union counties. The credit union has an occupation-based charter — members include landscapers, doctors, dentists, local government workers and others.

• Brookland Federal Credit Union just started a program this month aimed at helping free people from the clutches of payday lenders, said CEO Rosalyn Glenn. Members can get a loan of up to $1,500, which must be repaid over a 12-month period, for the express purpose of paying off payday loans. Brookland, a faith-based credit union formed by Brookland Baptist Church in West Columbia, makes the loans as part of its GRACE Program. GRACE stands for “Getting Real About Christian Economics.”
  
  Borrowers must agree to go through budgeting and counseling sessions. The focus is on getting people to better manage their finances, Ms. Glenn said. “We encourage consistent savings so that if you need $300, you can borrow it from yourself.”

That’s the best alternative of all.

Reach Mr. Bolton at (803) 771-8631 or wbolton@thestate.com.

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