There are many reasons that a person may look for an immediate influx of cash—emergency auto repairs, an unfortunate trip to the hospital, or an interruption in work can leave so many folks with without the funds needed to cover their necessities for the month. Unfortunately, the group of people finding themselves in this situation is growing; a recent study by the Financial Health Network reported that 50% of people in America feel financially unwell.
What are these folks to do, then, when a surprise expense pops up? Too often, borrowers pay an extraordinary price for the speed, convenience, and anonymity provided by storefront and online payday lenders, title lenders, pawnbrokers, and check cashers, instead of approaching highly regulated depository institutions.
Credit unions have experienced how their members have been taken advantage of or seen bad financial situations exacerbated further by unsavory lenders peddling an easy solution. The speed and convenience that storefront and online payday lenders offer comes with high costs and fewer regulatory protections.
Even with stimulated unemployment assistance, the pandemic hammered families across the country and high-interest lenders were more than happy to “help out” with short-term loan rates as high as 500 and 600 percent. Unfortunately, many families had already turned to alternative lenders by the time relief found its way to them. The pandemic made for big business in the alternative lending space.
Enova International Inc. and Elevate Credit Inc., two publicly traded companies that provide high-cost loans to non-prime consumers online, reported record profits in 2020, even as overall revenue declined. A forthcoming study from the University of Houston argues that Black and Latino consumers frequently resort to high-interest lenders not only because it’s easier than seeking a bank loan but also because the companies aggressively target these communities. In addition, research from the National Consumer Law Center supports this claim and finds that through misleading or confusing term agreements, borrowers with limited financial education do not fully understand future consequences of these types of loans.
There are myriad horror stories from every state detailing how these types of lenders prey upon their victims. In New Mexico, in order to secure emergency cash after a family member was laid off due to COVID-19, a woman used the title of her car as collateral for a $3,500 at 155% interest. “It was very enticing … It’s like, yes, this is the answer to our prayers,” she said. “On a $3,500 loan, we’re going to be paying back $11,445.”
Guadalupe Credit Union learned about the high concentration of these loans around Native American reservations and other communities of color and created a “Predatory Debt Relief Loan” program to help members get out from under massive debt and continue their path toward financial independence. In the first two years of the program, Guadalupe Credit Union has helped 90 members through the Predatory Debt Relief Loan program, saving New Mexicans half a million dollars in interest.
Guadalupe credit union isn’t alone in doing this work. Across the country, credit unions are finding novel ways to put members’ financial well-being ahead of the bottom line. From refinancing exorbitant interest rates to providing payday alternative loans to keep folks from falling victim to abusive lenders, credit unions are proud to be the first line of defense during times of financial need.
This is all part of credit unions’ “people helping people” philosophy that provides members with $12.6 billion in annual savings every year. Whether paying off debt, saving for retirement, or supporting healthy financial habits, credit unions are committed to promoting financial well-being for all. Learn more about this important work, here.
America’s credit unions are local community-based not-for-profit financial cooperatives that are owned and run by their members. Credit unions are the better choice for America’s middle-class families. They work to help families follow their dreams, keep their homes, start and expand small businesses, and hold communities together.