HARRISBURG (October 19) – Pennsylvania families who need small, short-term loans now have a Better Choice alternative to predatory payday lenders, thanks to an innovative program developed by the Pennsylvania Credit Union Association (PCUA) in partnership with State Treasurer Robert P. Casey, Jr., and with support from the Pennsylvania Department of Banking. The new Credit Union Better Choice program provides affordable, 90-day loans of up to $500 with a unique savings component equal to 10 percent of the loan amount.
Unlike payday loans, which impose staggering costs on unsuspecting borrowers, Better Choice loans have low fees and safeguards to prevent borrowers from getting caught in vicious debt traps. Payday lenders typically target those who can least afford to pay the high fees associated with their revolving short-term loans, such as working mothers, military families, and people living paycheck-to-paycheck.
“Payday lenders prey on desperate families and cost those who are already struggling to make ends meet billions of dollars per year in fees,” Casey said. “Our Better Choice program gives working people a real alternative to borrowing against their next paycheck. With lower costs, extended installment payments, financial counseling, and a savings boost, Better Choice helps families make ends meet without devastating their budgets.”
Better Choice loans differ from predatory payday loans in a number of important ways:
- A Better Choice loan must be paid in full before a borrower can take out another loan. This prevents a borrower from getting caught in a never-ending cycle of rolling over a loan on its due date and paying exorbitant fees for the privilege.
- Better Choice customers will be loaned an additional 10 percent that will be deposited in an interest-bearing savings account in the borrower’s name.
- Credit unions will offer financial counseling to Better Choice customers to improve their fiscal literacy and help them make smart long-term financial decisions.
- The Better Choice loan application fee will not exceed $25, regardless of loan size. Payday lenders commonly charge as much as $25 per $100 borrowed.
- The interest rate charged on Better Choice loans will not exceed 18 percent. Payday lending debt traps can lead to effective interest rates in excess of 500 percent.
- No credit check is required for a Better Choice loan.
- No collateral is required. A Better Choice borrower does not have to provide a post-dated check as security for the loan’s eventual repayment.
- The 90-day loan repayment term is considerably longer than most payday loans, which require payment in full by the next paycheck.
- Loan payments can be made in weekly, bi-weekly, or monthly installments.
“There is clear demand for low-dollar, short-term loans,” said Acting Banking Secretary Victoria A. Reider, a supporter of the Better Choice program. “The annual volume of loans made by so-called payday lenders is astonishing, as are the allegations of abuse that characterize the industry.”
“I applaud Treasurer Casey for working with mainstream financial institutions to find a way to responsibly meet the immediate financial needs of Pennsylvania’s hard working families,” Reider said. “I am particularly supportive of the financial education component of the Better Choice product. By linking short-term financial help with financial counseling, consumers can get the cash they need as well as the knowledge to create a better financial future.”
Casey’s staff and PCUA officials spent the past year developing the key elements of the Better Choice program.
“Pennsylvania’s credit unions commend Treasurer Casey and his staff for their diligent work in helping the Pennsylvania Credit Union Association develop a statewide alternative to payday lending,” said Jim McCormack, Association CEO. “This program will allow many Pennsylvania working families keep more of what they earn and learn how to better manage their personal finances.”
“When Better Choice loans are repaid,” Casey said, “borrowers will have a better understanding of how to manage their money, and they will have established valuable relationships with their local credit union partners.”
Casey praised the PCUA for its commitment to developing the Better Choice program and noted that this is the first program in the nation to offer a statewide alternative to payday lending.
“Pennsylvania’s credit unions have once again proven their strong commitment to meeting the needs of their customers and their communities,” Casey said.
In support of the PCUA’s efforts to enroll as many credit unions as possible in the Better Choice program, Casey said the Treasury Department would make a $20 million deposit in an interest-bearing credit union account. Currently, at least 129 branches of 37 credit unions have announced they will offer Better Choice loans to their customers. Officials said that more are expected to join the program in the coming weeks.
Irv Ackelsberg, a long-time consumer advocate in Philadelphia, said, “the absence of fair and responsible small loan products has led some desperate people into the clutches of the payday lenders. Finally, at least for the members of these credit unions, a fair and responsible alternative will now exist in Pennsylvania.”
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