PEWAUKEE, Wis., Nov. 6 /PRNewswire-USNewswire/ — While payday lenders are making millions annually trapping Wisconsin consumers in a cycle of debt, Wisconsin’s not-for-profit, member-owned credit unions are putting millions back into the pockets of cash-strapped borrowers by offering payday loan alternatives that cost less, encourage financial education and steer consumers to more traditional loans offering lower rates. Already, Wisconsin consumers have saved $1 million on short-term loans by using credit unions, institutions that exist to serve members, not make profits.
“Payday lenders like to say they’re the only option consumers have to get a small loan quickly and without credit checks,” says Brett Thompson, President & CEO of The Wisconsin Credit Union League. “That’s a huge misperception that’s costing working families hundreds or thousands of dollars every year. Credit unions have always made small loans to meet immediate needs. And people who have come to credit unions seeking payday alternatives often discover that they don’t need a payday loan if they use one of credit unions’ other loan products.”
Thompson says credit unions aim to put borrowers on a better financial path by improving their creditworthiness, whereas payday lenders often lend at the highest possible interest rate.
“Payday lenders offer no savings vehicle, ineffective or no counseling and no incentive to stop using high-cost loans,” he says. “You can’t build wealth if you’re stuck in a loan whose interest eventually exceeds the principal.”
According to the state’s Department of Financial Institutions (DFI), Wisconsin has more than 500 payday lenders that, in 2006, made 1.6 million loans totaling more than $661 million. These loans disproportionately target people with low incomes. A DFI study in 2001 cited 87% of payday borrowers earning at or below $24,000 per year.
Credit unions’ REAL Solutions initiative, which earned a 2006 Governor’s Award for Financial Literacy, teaches consumers to save, avoid financial predators, access low-cost loans, improve creditworthiness and build wealth. The effort, begun in Wisconsin, has now spread to at least 18 other states and thousands of credit unions nationwide.
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Source: Wisconsin Credit Union League