Financial sobriety program helps kick payday loan habit
ALBUQUERQUE, N.M. (11/8/06)--First Financial CU in Albuquerque is unveiling a program to help consumers stay financially sober while kicking the payday loan habit.
For the past year, First Financial, like more and more credit unions, has begun countering payday lenders by offering short-term loans at much lower fees.
Now, it will launch a program that rewards consumers for getting out of the payday loan habit. If the member stays away from other payday lenders for a year, most of the fees they paid First Financial are returned to that member in a savings account.
CEO Ben Heyward told the Albuquerque Journal (Nov. 5), the credit union will forego fee income if the member kicks the payday loan habit for good. If the program can help just one family "overcome debilitating financial illness, then we'll have done our jobs."
The $309 million asset credit union charges members with direct deposit $12 per $100 borrowed for a two-week payday loan, while those without direct deposit pay $15 per $100.
That's much less expensive than the average $21.50 to $35 charged per $100 by New Mexico payday lenders. Like payday loans, the loans can be rolled over every two weeks.
With the new program, if members borrow $500 on a two-week loan, they would pay $60 in fees. The credit union would put $48 of the fees into an interest-bearing share certificate at about a 4.5% interest rate. If borrowers renew the loan 12 times before being able to pay off the loan, they will have $576 worth of fees into their account.
At the end of the 12 months, if the borrowers haven't taken loans out elsewhere, they will receive about $600 back.
The credit union also is offering individuals one-on-one financial counseling during the term of the loan.
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