Friday, April 28, 2006

Alternatives to Payday Loans Hit the Market

By J.J. Cameron
Payday Loan Writer

The Fayetteville Observer is reporting that people needing quick cash loans now have an alternative to getting money for emergencies without paying steep, and often endless, interest rates.

Fort Bragg Federal Credit Union, Pentagon Federal Credit Union Foundation and the State Employees Credit Union are offering short-term loans of up to $500 for those who need money between paychecks. Before, these borrowers used would turn to cash advance loans for an advance on their next paycheck.

Those payday loans were often coupled with interest rates that were twice as expensive as a credit card late fee, according to the Center for Responsible Lending in Durham. Payday loan companies stopped operating in March after years of pressure from the state attorney general.

Now, military members, Defense Department personnel, state employees and their spouses can get emergency loans with either zero or minimal interest rates. The ARK loans - which stands for Asset Recover Kit - require a $6 one-time fee at Fort Bragg Federal and Pentagon Federal. If the program is used more than once, the borrower must attend consumer counseling.

“I don’t think there is any other low-cost alternative out there,” said David Elliott, chief executive officer of the Fort Bragg Federal Credit Union.

No delinquencies on these loans

So far, borrowers at military credit unions have not had any delinquencies in paying back the loans, and the counseling is going so well that Pentagon Federal has a full-time counselor at its Skibo Road branch.

Lea Colletti, a loan officer at the State Employees Credit Union, said having a savings plan is another way to keep people from applying for multiple emergency payday loans. Last year, the credit union altered its five-year Salary Advance Program to include mandatory savings. The credit union charges 12 percent interest on the amount borrowed — which is up to $500 of the borrower’s next paycheck — and requires the borrower to put 5 percent of the loan into a sealed savings account.

If the borrower decides to access the savings account, he is barred from applying for a payday advance advance loan for six months. “This encourages people to save and get out of the emergency loan cycle,” Colletti said.

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