STEVE INSKEEP, Host:
Here's an effort to help people who always face a credit crunch. Long before the mortgage crisis caused widespread credit anxiety, many Americans were having to borrow against their next paycheck, often at extremely high interest rates.
Now, a growing number of credit unions hopes to steer consumers who are strapped for cash away from payday loans by offering less expensive alternatives.
NPR's Cheryl Corley reports.
CHERYL CORLEY: Here's the latest observation about payday loan stores making the rounds in the financial community: They are easier to find than a McDonald's or a Starbucks.
Lindsey Medsker, an industry spokeswoman, says there are about 24,000 payday loan stores. And last year, about 19 million people went to one to get cash quickly, typically about $300 with a $15 fee for every 100 bucks.
LINDSEY MEDSKER: When people are facing the reality of having to pay something today but they don't get paid for a couple of weeks, they're looking at what exactly is it going to cost them. What's the cost of the product? And they're making an educated rational choice when they're choosing a payday loan.
CORLEY: Medsker 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.
FELICIA WILBOURNE: They gave me that maybe $200, but I had to pay like $275 back the next pay period in two weeks. So that still left me in the hole, because once you give up that check, you don't want - you still have to wait another two weeks for another check.
CORLEY: For some customers, it meant rolling over their loans for a second or third time, sending them deeper into debt and prompting activists and state officials to push for restrictions, including limits on rollovers and caps on loan fees. Now a growing number of the country's 9,000 credit unions are offering payday loan alternatives.
Unidentified Woman: Hey, Felisha. (unintelligible)
CORLEY: At the North Side Community Federal Credit Union in Chicago, the chief teller greets customers by their first names. It's where Felisha Wilbourne conducts her financial business now. The credit union's director, Ed Jacob, says after noticing members had payday loans with interest fees over 600 percent, the credit union began offering an alternative.
ED JACOB: It's a $500 loan. It's at 16.5 percent, and it's pay back in six months.
CORLEY: For its part, the payday loan industry argues that bounced check fees of mainstream lenders or credit-card late fees can be even more pricy then their fees if computed on an annual basis.
Ann Leslie Parrish - a researcher for the Center for Responsible Lending, an organization that tracks lending practices - says the credit unions are making a good effort, but they are no panacea.
LESLIE PARRISH: There are some credit union products out there where they've lowered the interest rate, which is great, but they still make the loan due in two short weeks, which causes people to have to continually take out loans, just like they did with the payday lender.
CORLEY: 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, more of a community service than profitable.
North Side's Ed Jacob says credit unions have to see a bigger picture.
JACOB: The way I've got to view this is I'm going to help this person right now, and then we're going to help this person on a better path to a better financial future. And in two years, maybe they need an auto loan. And in four years, maybe they need a mortgage loan.
CORLEY: 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.
Cheryl Corley, NPR News, Chicago.
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