Payday Loans and Check Cashing = Black Market Banking?
First, let me get this off my chest - I HATE payday advance and check cashing services. I think they are black holes of the financial world that suck in the lowest earners and financially ignorant people of our society. Nothing against the people who use them. I have used them in my youth.
I have nothing against the people who work there or the people who open the buinesses. I am a capitalist for the most part you know. I hate the fact that they exsist though. It is likely irrational but thats who I am - an irrational child/man who uses his blog to rant. 
So, I was eating lunch on Friday and I say something that creeped me out. It was a “Check into Cash” commercial. A bunch of shiny happy people talking about how great this “service” was. But what really bothered me (beside the fact that these run at 11:00 am presumably for the unemployed home-dwellers) was the photos of the facilities as they were displayed behind the talking head. Here are what I saw:
Don’t these look oddly bank-like? They do to me. It then reminded me of the people that I used to hang out with in my youth who would refer to the check cashing businesses as their “Bank”. It looks like Check into Cash has really taken this to heart and is creating a more consumer oriented design to their “Branch Design”. This should really resonate with credit unions. These businesses really target low income communities and Latino communities. Granted that some of the folks who use these services do so because they are no longer permitted a bank account due to past indiscretions. But this only represents a small portion of their business.
I think Kinecta is right and I think Trey is right. I think really making this a financial service and explain why a holiday loan is superior is one good approach. I think that auto enrolling people into a savings vehicle that sign up for one of these short term loans is a good idea. I think anything that will stop people from getting sucked into the “Payday Loan Black Hole” is a great idea.
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Here is the link to the YouTube video:
http://www.youtube.com/watch?v=WGmAFykJgx8
I tried embedding it above, but didn’t work…
Also, to your point Tony, check out Alternatives FCU in New York:
http://www.alternatives.org/paydaytip.html
“Alternatives offers a Payday Credit Plan for members who have had an account at Alternatives for at least one year. This loan, structured like a Line of Credit, carries a $40 annual fee and an interest rate of 18%. 5% of every loan is deposited into a savings account for the borrower to build funds for future emergency financial needs. Payday Credit Plans must be paid off with your next pay or benefit check, but can be renewed with no additional fee. A $300 loan will cost the borrower $4.86 a month in interest as opposed to the staggering rates charged by predatory lenders.”
5% of every loan is saved.
Chris, thanks for the link to the video. I really think that Ken Eiden has found a balance between serving his members and the community at large. If I could give him a hug, I would.
The GoodMoney program rocks! The best thing about this program is that it takes an opportunity to connect with folks who most need financial help and solves their immediate problem AND provides a plan for the future. It is what we call a “Hand Up” instead of a “Hand Out”.
Thanks for sharing. I have been pushing this sort of idea with my clients for a few years now. Maybe now that “Other People” have done it, it will get more traction.
Totally agree. Check out the GoodMoney program from Prospera CU in Wisconsin:
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GoodMoney is the first partnership to place credit union services in a Goodwill store. A collaboration between Prospera Credit Union of Appleton, Wisconsin, and Goodwill Industries of North Central Wisconsin, GoodMoney offers:
•Short-term loans at less than half the rates of for-profit payday lenders;
•Check-cashing with substantially lower fees than for-profit check-cashers;
•Money orders and bill payments;
•International wire transfers serving a sizable Latino population;
•Referrals to Goodwill’s Financial Information and Service Center (FISC) in Menasha, Wisconsin.