ig1 microfinance in the us
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What is your annual interest rate for your student loans, mortgage, or credit cards? 5.00%, 7.00%, 15.00%, 25.00%, or even 36.86%Multiply that by 100.Would you borrow money at this rate (3686%)? Or allow anyone you know to do the same?This is happening today. Here in America. In a neighborhood near you.-----------------------------------------I will discuss the payday loan and check-cashing situation in certain neighborhoods, aka the lack of access to non-predatory financial institutions, in America, and one possible approach towards providing equitable access to financial resources to assist with asset-based community development.TRANSCRIPT
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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