Breaking the Cycle of the Payday Loan "Trap"

Detroit, Michigan (PressExposure) August 26, 2009 -- Tellers at the North Carolina State Employees' Credit Union noticed a troubling change several years ago: The first people in line on payday were high-cost lenders, waiting to cash checks from credit union members. A glance at the records showed thousands of credit union customers were turning to payday outlets for small loans to be repaid with their next paychecks. Such products typically carry annual fees of 300% to 1,000%.

Many strapped borrowers repeatedly roll over the loans, sinking deeply into debt. To wean its members from payday providers, the State Employees' Credit Union (SECU) in 2001 introduced a short-term loan that has a 12% annual interest rate, a maximum limit of $500, requires borrowers to repay via direct deposit of their paychecks and put 5% of loan proceeds in savings accounts. Each month, more than 40,000 people use the product, which has a maximum 31-day term.

Overall, members have accumulated $10 million in savings accounts. "We wanted to find a way to get our members out of this trap," says Jim Blaine, SECU president. "We have a vice president using it... It's not just a poor person's product." []

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Press Release Submitted On: August 26, 2009 at 1:03 am
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