Ohio credit unions provide alternative to payday lenders
November 15, 2006 - Dayton, Ohio
Getting into debt is easy; removing oneself from debt is an uphill battle that many people will lose. One major reason for this is the position they are put in by predatory payday lenders, according to the creators of StretchPay, a new program at many Ohio credit unions that offers small loans without the compiling high interest rates of many predatory storefront lenders. Payday lenders are storefront firms who make short-term loans, two to four weeks, to people who often live paycheck to paycheck. Predatory lenders are many payday lenders whose effective annual interest rates are normally over 300 percent. Because customers often end up renewing loans, large debts are accumulated which can lead to eventual bankruptcy. StretchPay is a reasonable alternative to payday loans, according to Bro. Victor Forlani, a UD management lecturer. Forlani helped lead the effort to create the StretchPay system. To qualify for StretchPay, a person becomes a credit card member for an annual fee of $35. They pay $40 for a $250-a-month loan and $45 for a similar $500 loan. The borrower must pay the entire balance of the loan within 30 days before taking a new advance. "This is a key provision because it prevents their debt from compounding due to compounding interest," Forlani said. The model is designed to be inexpensive, low-risk and easy. It is built around credit unions offering short-term salary loan advances in exchange for an interest rate and an annual fee. Members who take out the loans are offered free financial counseling, the goal being to move people away from living paycheck to paycheck. While UD students aren't the main concern for which the program was developed, debt among college students has become ever more common. "The usual culprit is overdue balances on several credit cards which students settle with the proceeds from a payday loan," Forlani said. A senior UD student, who wished to remain anonymous, said that his credit card debt is exceeding $5,000. He said, "[Debt] is so hard to get rid of. I am somewhat of a compulsive buyer; however, this StretchPay system will hopefully help me get out of debt." Forlani has a passion for helping the hard-working, low-income families that often get taken advantage of by high-interest payday storefront lenders. He added that the experiences of the families that StretchPay helps exemplify the good that can come from various firms and organizations banding together. Forlani used UD business students as assets while forming the program; they often did tedious but important research. The Ohio Credit Union League helped develop the StretchPay program and form Credit Union Outreach Solutions. Credit Union Outreach Solutions combines UD's Catholic, Marianist tradition of community service with the credit unions' mission to help working people save money and manage their finances. "StretchPay loans are a testimony to the university's commitment to fair business practices and the people who depend on them most," he said. Forlani has a message for the high-interest payday lenders. "Some at our table wish to put payday lenders on notice that we're going to be out there competing with you," he said. "Charging an excessive interest rate to honest working people is wrong."
News Source
Flyer News, Joe Giessler, Staff Writer
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