Payday lenders don’t ask a lot of questions.
They don’t ask for a person’s credit history. They don’t ask how the money will be used.
So it’s quick and easy to borrow money from these storefront operations if you have a job and a checking account.
But it’s also expensive. The interest rate for a payday loan in Nebraska is more than 400 percent a year, based on the fees they can charge.
Here’s how it works:
A person writes a check for $100 that will be cashed in two weeks and gets back $85 in return.
If the person is still short in two weeks, generally, he or she will find another payday lender and borrow another $100, or more, and pay the 15 percent fee again.
Too often, people who get payday loans can’t pay them off on time and end up continuing to borrow every two weeks, says Mark Koller. Koller is a consultant to a group working to start a low-income credit union that will offer an alternative to payday loans, also called cash advances.
Nationally, just 2 percent of people who get payday loans pay them off immediately. Nebraskans take an average 212 days, more than half a year, to get out from under such loans, Koller says.
“It’s steep, pretty dicey, and you can fall pretty fast,” he said.
The group Koller is working with has federal permission to move forward toward creating Lincoln’s first low-income credit union.
It has a board and has reserved a name: Community Hope Federal Credit Union. Hope also makes a nice acronym, Helping Our People Excel, Koller said.
Now, he's looking for $300,000 in donations to use as the financial reserve, the underpinnings for a credit union that will serve people living and working in the core of the city. The group would like to have the business open by summer.
Koller also is looking for people who live, work, worship or study in the core area to fill out a survey required as part of the credit union’s application process. He needs 400 people to finish the application, which is available online at cdr-nebraska.org.
The credit union will focus on the 12 census tracts in the core of the city, around Antelope Valley, where the adjusted median family income is 80 percent the city average and more than 20 percent of families fall below the federal poverty level.
The area looks like a boot in the core of the city, running from Superior Street to A Street, Koller said.
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People who live, work, worship or study there also would be eligible to be members of the credit union, although others could use it as well.
A representative of the payday lenders says he welcomes another lending source in Lincoln giving consumers more choices.
But Jamie Fulmer, with Advance America, says payday lenders offer a valuable option.
Getting money from a cash advance businesses can be less expensive than late fees for not paying bills on time, reconnect fees for utilities or overdraft changes for a check that bounces, he said.
Community Hope would become one of 2,000 federally charted low-income credit unions in the country, and the 17th in Nebraska. The business would offer loans, up to $5,000, and provide financial literacy education — everything from budgeting and saving on a limited income to home ownership.
“It is not a giveaway program,” said Koller, who is developing the project for the nonprofit Community Development Resources agency.
Once chartered by the National Credit Union Administration, the credit union would become an independent entity with its own board.
Rather than a two-week, $500 loan for emergencies, the credit union could make six-month or year-long loans, allowing the person some recovery time, said Koller, who would manage the credit union.
The credit union would offer loans for cars, for example, with terms that make sense for a person’s budget and would also get the person into a financial literacy class to help him or her budget for the future, he said.
Local human services agencies have long understood the need for a credit union that works with low-income families, said Rick Carter, executive director of Lincoln’s Human Services Federation, a local association of about 130 nonprofit agencies.
Often, these families have to rely on predatory lenders, Carter said. And there are 44 payday lenders in Lincoln, Koller said.
People usually know payday lending isn’t the best route, but it may be the only resource they have, Carter said.
Trying to get better control over predatory lending interest rates through state legislation failed, he said. Creating a credit union that would cater to low-income residents was another option.
Several years ago, about a dozen local credit unions formed their own service organization, offering loans of less than $1,000 at an 18 percent interest rate to members, Carter said.
“Forming our own low-income credit union is the next step,” he said.
Board members for the new credit union, when it is chartered, are working with Koller and Carter on the plan. They are Pam Baker and Julie Farwell, community representatives; Pastor Tom Barber, director of People's City Mission; Kit Boesch, administrator of Lincoln/Lancaster County human services; Rick Wallace, executive director of Community Development Resources; and Larry Williams, executive director of the Malone Center.