I don’t see a 90-day loan as an apples-to-apples comparison to a payday advance.  Nor is a forced savings plan.  From the news release by the Pennsylvania Treasurer:

Treasurer McCord explained that a typical $500 payday loan costs consumers $15 for every $100 borrowed for two weeks, or approximately $450 over 90 days.  A $500 “Better Choice” loan costs consumers approximately $42.50 for the same 90 days.  

As a condition of receiving the loan, the borrower agrees to deposit an additional 10% of the borrowed funds into a savings account, which allows them to develop a savings habit.  The program reinforces this wealth-building component by offering financial counseling to help borrowers make better financial decisions.

Participating credit unions have made 43,000 “Better Choice” loans totaling $20.5 million since the program’s inception in 2006, saving consumers nearly $15 million in fees and interest typically associated with payday lending products.

Strange headline from the Philly Inquirer:  “High-end payday loans.”    The story, however, is about pawn shops.  As you know, there is no payday lending in Pennsylvania.

Finally a story the explicitly points out that the Pennsylvania payday loan alternative–”Better Choice”– is a partnership between credit unions and the state treasury department.

So let’s see.  The military now relies on charity in the wake of the 36% rate cap and Pennsylvanians that have access to credit unions can get a government subsidized “alternative.”

Most reporters love Big Government.  In this story out of Pennsylvania, the “Better Choice” program, a lending program funded with $20 million in government subsidies, is lauded as much better than a payday loan.  Maybe for some people it is, but it’s not really an “alternative.”  It’s a 90-day loan.  

Payday lenders abide by their rules and regulations, but anti-payday lending forces aren’t really fighting to make payday loans more affordable or to make sure lenders stick to the laws.  Anti-payday lending forces want to ban you from you to taking out a payday loan, they don’t want you to even have the option.

Latest from Pennsylvania.

 

EDIT:

Egg on the Pundit’s face.  This is OLD NEWS (as in Wednesday, September 27, 2006 old news).  Like the Bloomberg story that caused United Airline’s stock to plummet $12, the internets are conspiring against us today.

According to the latest Department of Labor numbers, 63,000 jobs were lost in February, with the financial services industry being one of the industries hit hardest.

While some industries, like construction, were victims of a market slowdown, payday lending employees were victims of over-regulation.

In states like Oregon and Pennsylvania, the payday lending industry has been virtually regulated out of business, leading to the loss of thousands of jobs (with health care, paid time off, and retirement benefits). Not to mention the elimination of a popular and regulated credit option for consumers.

 

 

Seems like we should be creating new jobs and providing access to credit, not taking both away. 

 

Your Payday Pundit is working on a scoop that nobody in the media has yet picked up on involving the “Better Choice” program recently enacted in Pennsylvania. 

Payday advance lenders are all about free markets and competition because they ultimately bring better value to consumers.  But a close look at the Pennsylvania Better Choice program reveals a scheme that forces borrowers to increase their debt, provides a windfall for participating credit unions, and destroys consumer choice in commercial banking options.

How does it work? 

The Pennsylvania Better Choice program has several requirements, including:

• You must be a member of a participating credit union
• You must pay a $25 application fee
• You must take out a loan for 10% more than you need
• You must pay an APR between 13% and 18% 

Given these mandatory requirements, let’s take a look at one ordinary scenario.  A person needs $300 to fix a broken water heater.  If they want a Better Choice loan, they have to first be a member of the credit union.  If they’re not a member, they can’t get a loan, period.  If they have a savings or checking account at a different bank, they can’t get a loan, period. 

If they really want the loan, they must join the credit union, which means opening a new credit union account, regardless of how many other bank accounts they may have at other institutions.

 

Once that’s done, they sit down to figure out the terms of the loan.  The $25 application fee is added to the loan amount, raising the loan balance to $325.  Then, the credit union compels borrowers to add another 10% of the loan request – $30 for a $300 loan – to the loan balance, making a grand total principal loan balance of $355.  A heck of a deal for someone who only needs 300 bucks.

Now here’s the really interesting part. The additional $30 tacked on to the loan amount is deposited into the borrower’s credit union account.  The borrower can’t touch that $30 until the loan is paid off and the $30 does indeed earn interest.  Once the loan is paid off, the borrower has access to this $30 in their savings account plus the interest earned. Sounds good, right?

Look closer

Payday Pundit has chosen one particular credit union to make this point.  We have nothing for or against this particular credit union, we’re just using it as an illustrative example.

The Riverfront Federal Credit Union offers Better Choice loans with the aforementioned terms and an 18% APR.

http://www.riverfrontfcu.org/BetterChoiceLoan.asp

Now check out their rate of return on a money market savings account.  With a $500 minimum, the money market account pays 1.75% APY.

http://www.riverfrontfcu.org/mon_mar.asp