ig1 microfinance in the us

Microfinance in the U.S.

Providing access to non-Predatory Financial Institutions

via Community Development Credit Unions

Jeremiah Tillman & Ron ChinMay 28th, 2009

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Predatory financial institutions

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How Do Payday Loans Work?

• Unsecured loan on a future check

• Typical interest rate of 15%• for a 2 week period

• Many customers carry a balance

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How Do Payday Loans Work?

• Implications?

Annualized interest rates (EAR):• Mortgage ~ 5-7%• Student Loans ~ 7-8%• Credit Cards ~ 10-20%• Payday Loans ~ >3500%

• Many customers carry a balance…

EAR: Effective Annual Rate, takes into account compoundingSource: www.bankrate.com, www.en.wikipedia.org/wiki/Payday_loan

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How Do Payday Loans Work?

• Many customers carry a balance…

• How much would a $100 loan cost to pay back at the end of 1 year?

Interest vs. Loan Type

0

5

10

15

20

25

Mortgage (30yrfixed)

Mortgage (30yrfixed)

Student Loan(private)

Student Loan(private)

Credit Cards (lowinterest)

Credit Cards(high interest)

Type of Loan

Inte

rest

Rat

e (E

AR

)

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How Do Payday Loans Work?

Interest vs. Loan Type

0

5

10

15

20

25

Mortgage (30yrfixed)

Mortgage (30yrfixed)

Student Loan(private)

Student Loan(private)

Credit Cards (lowinterest)

Credit Cards(high interest)

Type of Loan

Inte

rest

Rat

e (E

AR

)

Interest vs. Loan Type

0

500

1000

1500

2000

2500

3000

3500

4000

Mortgage(30yr fixed)

Mortgage(30yr fixed)

Student Loan(private)

Student Loan(private)

Credit Cards(low interest)

Credit Cards(high interest)

Payday Loans

Type of Loan

Inte

rest

Rat

e (E

AR

)

IgniteChi.org

How Do Payday Loans Work?

Interest vs. Loan Type

0

5

10

15

20

25

Mortgage (30yrfixed)

Mortgage (30yrfixed)

Student Loan(private)

Student Loan(private)

Credit Cards (lowinterest)

Credit Cards(high interest)

Type of Loan

Inte

rest

Rat

e (E

AR

)

Interest vs. Loan Type

0

500

1000

1500

2000

2500

3000

3500

4000

Mortgage(30yr fixed)

Mortgage(30yr fixed)

Student Loan(private)

Student Loan(private)

Credit Cards(low interest)

Credit Cards(high interest)

Payday Loans

Type of Loan

Inte

rest

Rat

e (E

AR

)

Interest vs. Loan Type (Logarithmic Plot)

1

10

100

1000

10000

Mortgage(30yr fixed)

Mortgage(30yr fixed)

Student Loan(private)

Student Loan(private)

Credit Cards(low interest)

Credit Cards(high interest)

PaydayLoans

Type of Loan

Inte

rest

Rat

e (E

AR

)

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Who Uses Payday Loans?

• Younger consumers with limited understanding of finances

• Consumers who are deeply in debt

• Consumers who are struggling to meet their day-to-day financial obligations

• Those who have a history of using high-risk lenders

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Impact on community

•Payday loans are extremely expensive.

•Don’t help you solve the problem at hand.

• Can have drastic effects on credit scores.

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What can be done?

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Asset Based Community Development – Credit Unions

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Who Owns a Credit Union?

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Who Runs a Credit union?

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What Products do Credit Unions Offer? ๏ Health Savings Accounts

๏ Home Equity Loans

๏ Home Loans

๏ Identity-Fraud Protection

๏ Internet Banking

๏ IRAs

๏ Line of Credit

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What Products do Credit Unions Offer? ๏ Line of Credit

๏ Local Advantage

๏ Privacy Policy

๏ Refinancing

๏ Safe Deposit Box

๏ Savings

๏ Trusts

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What Products do Credit Unions Offer? ๏ Business Banking

๏ Checking Accounts

๏ Club Accounts

๏ Debit-Credit Cards

๏ Deposit Insurance

๏ Direct Deposit

๏ Education Loans

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How Competitive are Credit Unions?

Very CompetitiveIgniteChi.org

Is Your Money Safe at a Credit Union?

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In Conclusion…

Community Development Credit Unions

www.cdcu.coop

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