(March 21, 2007 – Washington, D.C.) On March 21, community development credit union (CDCU) leaders Rita L. Haynes, CEO of Faith Community United Credit Union in Cleveland, OH, and Ed Jacob, CEO of North Side Community Credit Union in Chicago, IL, gathered at the Rayburn House Office Building to present testimony to the Subcommittee on Domestic Policy of the House Oversight and Government Reform Committee.
The hearing, titled “Foreclosure, Predatory Mortgage and Payday Lending in America's Cities” was convened by Representative Dennis Kucinich (D-Ohio) to investigate predatory mortgages, payday lending, and foreclosures plaguing inner-cities and minority communities. This hearing is the first in a series of hearings Kucinich plans to hold that focus on issues afflicting urban America.
CDCUs are community controlled, not-for-profit, financial cooperatives that serve neighborhoods where a majority of residents live at or below the poverty line. CDCU members are the very people most often targeted by predatory lenders, which is why CDCUs have been at the forefront in developing affordable alternatives to wealth-stripping predatory lenders.
“Faith Brings Grace to Cleveland”
Haynes, a long-time CDCU advocate and immediate past Chairman of the Federation’s Board of Directors, spoke about her credit union’s commitment to its community.
“In the credit union’s fifty-five years of operation, Faith [Community United CU] has been in the forefront of creating and implementing financial products and programs that assist lower income residents build wealth,” she said. “One of the more successful of these products is the Faith-developed ‘Grace Loan,’ initiated in 1999 to combat the flow of our membership to predatory payday lenders who moved into our area when most banks vacated the inner city.”
| Congressman Dennis Kucinich (D-OH) thanks Faith Community United CU, CEO Rita L. Haynes for her testimony.
The maximum amount for a Grace Loan is $500 in any month, and the credit union requires borrowers to save a minimum of $10 per month and show proof of employment. The Grace Loan also carries a lower application fee and interest rate than traditional payday lenders whose annualized interest rates on these types of loans can range from 300-800% when flipped repeatedly.
CDCUs recognize that the people they serve have a distinct need for short-term cash from time to time. But unlike for-profit payday lenders, CDCUs have created affordable products that help their members keep more of their hard-earned cash. Faith Community United CU allows members up to twelve Grace Loans per year, but Haynes stressed that the goal of her credit union is to wean the members off the payday loans and into more traditional (and lower interest) loan products.
In 2004, the Federation made six APPLE (Alternative Products to Payday Lending) Grants to CDCUs developing new payday alternative products or expanding existing programs. Under this special program, supported with funding from JP Morgan Chase, Faith Community United CU received an APPLE grant of $50,000 to document and expand the credit union’s Grace Loan program.
In Chicago’s North Side One CDCU Makes PALs
North Side FCU is another CDCU at the forefront in developing responsible and affordable alternatives to commercial payday loans. North Side developed their Payday Alternative Loan (PAL) in mid-2002 after a member brought in her sister who was in trouble with payday loans.
In his testimony, Jacob illustrated the reality of consumers becoming trapped in a payday cycle as he retold the story of a member who brought her sister into the credit union for help.
“The sister had taken out seven payday loans, owed about $3,000, and was using every paycheck just to pay the rollover fees on her loans,” Jacob said. “While she paid interest and rollover fees on the loans for a few months, she had not paid a penny of principal on her loans. Not only that, when we ran her credit report, none of the payments showed on her credit report. Not only was $3,000 gone that she couldn't spend on her kids, or on investing, or on a down payment for a home, but she wasn't building up a positive credit history. Her story, and similar stories from other community residents, pushed us to act.”
Developing this type of alternative product is not an easy task, especially by a small credit union with limited staff. North Side FCU has just over $8 million in total assets, but is fortunate to have help from a variety of private and public sector partners. The National Credit Union Administration has been supportive of North Side’s work on regulatory and examination issues, and the CDFI Fund of the U.S. Department of the Treasury provided initial capital for the program. A number of local banks have also provided support – both financial and technical – as the credit union developed and studied the product.
| NAFCU's John Florian and Debbie Kwon-Moore speak with Ed Jacob after the hearing.
Of the 4,200 Payday Alternative Loans North Side funded so far, members have saved over $3 million that would have been paid just in interest and fees on typical payday loans. This is a substantial amount of money which can be used to build community wealth instead of being siphoned away from the neighborhood economy.
“I’m pleased that we are saving our members and the community so much money, and providing an alternative to the payday lenders,” explained Jacob. “But the most important difference between North Side and a payday lender -- even more important than the interest rate -- is that I want to move people out of my payday alternative loan product. It is not my mission and vision in life to have members come in and take out this loan every six months. And that is where I think the really hard work is, is to take people along a better financial path.”