A growing number of the nation's 9,000 credit unions are hoping to steer consumers strapped for cash away from costly payday loans by offering less expensive alternatives.
There are about 24,000 payday loan stores in the United States and last year, about 19 million people used one, industry spokeswoman Lyndsey Medsker says.
Medzker says the bulk of those customers are satisfied. The process just takes a few minutes, including a quick check of a person's bank account and pay stub.
But 32-year-old Felisha Wilbourne says payday loans aren't worth it. She went to an outlet a few years ago when she was falling behind on her bills.
"They gave me $200, but I had to pay $275 back in the next pay period in two weeks," she says. "That still left me in the hole, because once you give up that check you have to wait a two weeks for another check."
Now Wilbourne uses Northside Community Federal Credit Union in Chicago. It's one of many credit unions offering payday loan alternatives.
Ed Jacob, Northside's director, says the credit union decided to offer an alternative after noticing that some members had taken out payday loans with interest rates over 600 percent.
Northside offers a $500 loan that can be paid back over six months, Jacob says.
For its part, the payday loan industry argues that bounced-check fees of mainstream lenders or credit-card late fees can be even more pricey than the interest on payday loans, if those costs are computed on an annual basis.
Leslie Parish, a researcher for the Center for Responsible Lending — which tracks lending practices — says that credit unions are making a good effort but they are no panacea.
"There are some credit union products out there where they lowered the interest rate," Parish says. "They still make the loan due in two short weeks, which causes people to continually take out loans just like they did with the payday lender."
Many credit unions are taking steps to refine their products. Payday lenders say they welcome the competition but add credit unions are offering small loans at margins that will make them unsustainable.
Jacob says credit unions have to see a bigger picture — one in which people who need a small payday loan today may turn into mortgage-loan customers in a couple of years.
It's an idea that more credit unions are beginning to embrace as they offer alternatives to people who need some financial help making ends meet.