The American Dream is founded on the belief that people, who work hard and play by the rules will be able to earn a good living, raise a family in comfort and retire in dignity. But that is hardly the case as more than 20 million Americans spend up to $60 million a year on fees to cash their paychecks or pay off high priced loans. So while we all relish a Friday payday, the accompanying fees that for some come with cashing that check are hardly welcomed.
Today, the number of check cashing, payday lenders and pawnshop locations are more than double the number of McDonald’s franchises in the United States. Many nonbank customers are either leery of banks or believe they do not offer the products they need. Full-time workers without a checking account typically pay $40 on average to cash their paychecks and payday lenders sell an additional $40 billion in expensive small-dollar loans each year, which carry fees up to 30 times the average credit card rate.
Many banks and credit unions are expanding their efforts to extend access to transaction accounts and alternatives to payday loans with terms attractive to the unbanked and underserved. More than 90% of nonbank alternatives are located within one mile of a bank or credit union branch, but highly successful credit unions have developed methods of their own to counteract these high costs and serve new members.
Real alternatives for Payday Loans and Lendings
Wright Platt Credit Union ($1301.6M, Fairborn, OH) developed its Bridge Line of Credit (BLOC) to provide members with an alternative cash bridge between paychecks. They have also introduced Stretch Pay, which provides members with a fair alternative to payday loans. Both programs have been so successful, that they have been implemented by neighboring credit unions in Ohio and Wisconsin.
Prepaid Cards initiate a relationship with the Unbanked
CINCO Family Financial Credit Union ($118.4M in Cincinnati, OH) is committed to reaching the unbanked via the prepaid card product. They believe offering a "micro credit" product that provides members with a friendlier alternative than traditional payday loans is important to fulfilling the credit union's mission.
QuickCash at a reasonable rate and term
Langley FCU ($1.2B in Hampton, VA) offers QuickCash as a payday alternative
for its members. Originally developed to meet Air Force member needs, the
service is widely used by members of the military and other SEGs. Compared to
the 390% APR resulting from the average fee of $15 for each $100 increment
charged, Langley’s QuickCash program features an 18%APR, which leads to
huge member savings. This is in addition to helping them build a relationship
with the credit union where someone is looking out for their financial well-being.