This is what is seems some legislators have been telling victims of predatory lending for years. Or put another way, if we take away payday and car title loans at 350 percent interest, where else will these people turn for help? Should we just “Let them eat cake”? Or are there other solutions?
Gov. Kaine recently announced that state employees faced with a sudden financial emergency will now have access to a small loan through The Virginia State Employee Loan Program. Small loans from $100 to $500 will be offered to state employees through the Virginia Credit Union and backed by the Virginia State Employee Assistance Fund. “This program will allow our state employees to receive small loans without having to go to predatory lenders,” Governor Kaine said. The loans will carry an APR of 25 percent interest and will be payable over six months with no prepayment penalty. The state employee credit union in North Carolina has been offering a salary advance loan at 12 percent interest since 2001.
But what about people that are not employed by the state? Contrary to what the predatory lenders are telling us, there are a lot of options out there. Let’s start with the credit unions in Virginia. Many credit unions are searching for viable solutions, and some have had small loan programs to help their members while educating them on how to get better financial footing. Memberships for most credit unions are only $5 and, unlike a predatory lender, Credit Unions want to help their members pay off their loans. Bayport Credit Union in Newport News, the University of Virginia Community Credit Union in Charlottesville, Call Federal Credit Union in Richmond and many others around the state have small loan programs in place or are starting them. Nearly all Virginians are eligible to join a credit union. Go to www.findacreditunion.com to find a credit union you may be eligible to join.
A bad credit report is not necessarily a bar to a credit union loan. The National Credit Union Foundation just released the results of its survey on the impact of its REAL Solutions program. The REAL Solutions program seeks to arm credit unions with products and services designed to better serve lower income members and communities. The survey found that 91 percent of REAL Solutions participating credit unions make used car loans to borrowers with low credit scores. These non-prime loans from credit unions use a REAL Solutions program called “steer clear of predatory car loans” to avoid bad loans from used car dealers. Fourteen Virginia credit unions participate in the REAL Solutions program.
What about the faith community? The faith community has long been a source for people to turn to in times of financial crisis. Many churches and non-profit organizations are beginning to create their own loan programs to fulfill the needs for small loans in their communities, as well as educating folks on what other services are in place to help them in emergency need situations. What local church, synagogue, temple or mosque doesn’t have an emergency fund to help its members and others in need in their community? More organized efforts have been around for many years: Catholic Charities, Love, INC in the Charlottesville area, The Jewish Federation of Greater Washington, and The Islamic Center of Virginia in Richmond, just to name a few. The United Methodist Church in Virginia is using its credit union to promote even more ways to help those in financial need.
Do we need more alternatives for people in financial emergencies? Yes, and others need to step up and offer assistance. As Governor Kaine said in his recent announcement about the Virginia State Employee Loan Program: “This program will allow our state employees to receive small loans without having to go to predatory lenders.” “If the Commonwealth can offer this kind of program, other large employers may consider similar initiatives of their own.”
So, we don’t need to tell those in a financial emergency to eat cake or to go to a predatory lender to get into a much worse situation. Yes Virginia, there are alternatives. Let’s stop asking the wrong question and start asking this: When is the legislature going to cap the interest rate on the wrong answer to a financial problem—payday and car title lending?
Jay Speer is the executive director of the Virginia Poverty Law Center.