Payday loans, some called them a quick cash solution for lower income consumers. Some said they just preyed on the poor. But Payday Loans were available if the rent was due, a kid was sick or the car died.
"I needed $300 to pay for my rent that was getting behind," said payday loan customer Tawana Stewart.
So like lots of lower income consumers, Stewart took her troubles to a payday lender.
"So, I figured in a couple of weeks I should be able to have enough money to pay the loan back plus the finance charge. But of course, that didn't work out that way," she said.
That's because a $300 payday loan ended up costing Stewart $5000 and finally bankruptcy, an all too common story for many other payday borrowers.
"I fell on financial hardship for medicine, out-of-pocket doctor's office visits," said credit union member Sabrina Middleton.
But instead of turning to payday lenders as she had in the past, Middleton turned to a more familiar and consumer-friendly lender -- the Department of Labor Federal Credit Union, one of many credit unions nationwide that are now offering payday loan equivalents.
Middleton, who works at the labor department, said her loan is called stretch pay.
We knew our members were getting payday loans from payday lenders and paying high fees and we wanted an alternative for our members to get out of that cycle or at least to pay less money for it," said Joan Moran, CEO of the Department of Labor Credit Union.
Stewart had to re-borrow every two weeks when she couldn't pay her loan off. So she incurred new fees every two weeks and interest that just compounded. Many payday lenders earn 300-500 percent interest. But Middleton's stretch pay loan carries an annual fee of only $70, and her interest rate was 18 percent. On the $4000 she borrowed, over the course of a year she's paid $61 in interest.
"We've done over 700 advances since last November, and they're paying $7.40 for a $500 loan. We've saved them a lot of money," said Moran. "We're not doing it to make money. At $7.40 a loan we're really not making any money. We're doing it as a service to our members."
There are also other alternatives to payday loans. Consider negotiating a payment plan with your creditors, an advance from your employer, an emergency assistance program from a faith-based group or community organization, a cash advance on your credit card, a military loan, or even a small consumer loan from a finance company.
The District of Columbia basically put payday lenders out of business when it capped interest at 24-percent. Payday loans are outlawed in Maryland, but payday lenders do operate in Virginia and online.
