By: Javi Calderon
Credit Union Payday Loan Plan Popular in Pennsylvania
Around 80 credit unions in Pennsylvania are taking part in a program to offer state residents a short-term lending product similar to payday loans. So far, almost $26 million has been lent in over 53,000 loans.
The loan is 90 days long and has a maximum limit of $500. Unlike a payday loan where the borrower signs over a check for the amount of the loan, to be cashed when their next check comes in, the credit union alternative has the borrower pay back the loan in two week increments. Once the loan is repaid, $50 is credited back to the borrower in a savings account.
Launched in 2006, the program is a collaborative effort between the Pennsylvania Treasury Department, the state’s Department of Banking, and the Pennsylvania Credit Union Association.
Noticing the high demand for quick credit over the last several years, cash-strapped banks and credit unions all over the United States have started developing products to compete in the payday advance market. While any short-term loan will carry a high interest rate, the fact that competition is being introduced will only benefit the consumer. Lenders will be forced to lower prices and ensure quality in order to stay competitive.
The state of Pennsylvania has had payday loan laws since 2002. Under state law loan documentation must include a clear break down of fees and charges, fees cannot surpass $75, and the maximum loan amount is $500. Lenders are prohibited from extending a borrower a loan if they have a remaining balance on another, even if it’s from a different lender. Cash advance lenders cannot press criminal charges on a borrower who is unable to pay off their loan. Borrowers have up to 24 hours to void a loan if they change their mind.