Another great article from Felix Salmon at Reuters, discussing the differences between a credit union payday-like product and those offered by traditional payday lenders. It’s probably one of the more level-headed approaches to explaining how the product works.
Just one excerpt from the article:
“…what payday lenders are really selling is convenience, at least as much as it is loans. Check cashers, payday lenders, and the like do not keep typical banking hours: they’re open late, they’re open at weekends, and they are generally found in small storefront locations which would not be suitable for a fully-fledged bank branch.
This is entirely rational — you want to be where your customers are, and you need to be able to reach your customers when they’re not working any of their jobs. But at the same time, it’s expensive. And in general, credit unions are already paying for the cost of their overheads, before they start offering any kind of payday loan. So while payday lenders have to cover a lot of overhead from the proceeds of just one product, credit unions have to cover just the marginal cost of the payday loans, which is a great deal smaller. After all, their staff and real estate is already being paid for.”
It depends a lot on the state too. Some states have really increased their payday loan regulations; which would probably make it a lot easier on the credit unions. Also, both have appeal to different audiences. A typical middle class American would probably be more likely to go to a credit union, while those of a lower socioeconomic class would go to a payday lender.
It’s the same thing same idea, generally same rates, and fees. I think the only difference is the facade.