Banks waver, CUs step up with payday loan choices
PHILADELPHIA and PITTSBURGH (9/29/05)--Pennsylvania banks shied away from the state's effort to provide loans to high-risk borrowers victimized by exorbitant rates on payday loans. But credit unions stepped up to fill the void, said the state Treasurer's Office.
According to The Philadelphia Inquirer (Sept. 28), former state Banking Secretary William Schenck III began approaching banks last year, looking for a "fair and reasonable alternative" to the payday loans that cost more than 400% in annual interest.
But he and state treasurer Bob Casey Jr. "have had a tough time persuading major banks to expand their menus," according to Karen Walsh, a spokeswoman at the state Treasurer's Office.
So the state turned to credit unions, and the Pennsylvania Credit Union Association (PCUA) responded. PCUA, the state's Treasurer's Office and the Department of Banking are offering a new program, Better Choice.
Better Choice offers $500, three-month loans at an annual interest rate or 18%, plus an application fee of up to $25, and a savings deposit of $50. The terms are "a fraction of the cost" of traditional payday loans, Walsh told another newspaper, the Pittsburgh Post-Gazette (Sept. 28).
The credit unions' loans are a better choice when compared with the $150-a-month fees-plus principal and 5.98% interest on a loan from Advance America, a national check-cashing chain that the state sued in state court Wednesday to stop those loans, said the Inquirer.
Diane Powell, PCUA spokeswoman, told the Inquirer, "The idea is to get them out of the lending trap, not just to fee them to death."
Credit unions are in the process of signing up for the program now. Powell said PCUA hopes the loans will be offered by the end of October. The Treasurer's Office will deposit up to $20 million in credit unions as an incentive to join the program.
"Pennsylvania's credit unions are proud to offer a wealth-building alternative to predatory payday lending throughout the state," PCUA President/CEO Jim McCormack said in Life is a Highway (Sept. 28).
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