NEW YORK (MainStreet) — Payday operators have long operated in the shadows on the seamier side of town, but one community bank is looking to bring payday loans into the sunshine of respectability. It offers better rates and has a unique savings feature attached that promotes savings and not spending.
It’s not all that strange for banks to be involved in the payday loan industry, even though they likely won’t advertise it on a Times Square billboard. Both Wells Fargo (Stock Quote: WFC) and Bank of America (Stock Quote: BAC), for example, have stakes in payday loan operators, but that doesn’t change the fact that payday loan outfits have a lousy reputation.
There’s plenty of room for improvement, and that’s where credit unions are entering the picture. Just look at North Carolina’s State Employees Credit Union (SECU): In February, the financial institution launched a “payday lending alternative” called the SECU program, which is available to the credit union’s 100,000 members, and offers borrowers a maximum of $500 in payday loans each month.
The interest rate really sets the SECU program from most payday loan operators, too. Instead of charging huge rates of 650% or more, the credit union only charges 12% (still higher than most banks' personal loans), and as long as a member’s savings account holds more than $500, the payday loan rate can go as low as 5.5%.
The credit union estimates that members who qualify for the lower rate will collectively save $400,000 by adhering to the SECU’s minimum balance requirements, and Bobby Gardner, SECU senior vice president of loan systems, says program participants save a total of $63 million (collectively) each year by using the SECU payday loan program and not the payday loan outfit down the street.