Credit unions have grown in membership since the financial crisis, said Carrie Hunt, the executive vice president of government affairs and general counsel for the National Association of Federally-Insured Credit Unions. There are now more than 106 million members of credit unions, up from nearly 89 million in 2008.
“Credit unions have been a best-kept secret,” said Cathie Mahon, president and chief executive of the Atlanta-based National Federation of Community Development Credit Unions, which in June announced a partnership with credit reporting agency Equifax to open a physical location that distributes credit union information.
Changing your pay schedule
One idea is surprisingly simple: Ask your employer to change your pay cycle. Because one of the most common reasons consumers turn to short-term loans and credit-card debt is that bills come due before a paycheck arrives, being able to adjust pay cycles can address part of that problem, according to John Thompson, senior vice president at CFSI.
Some people may be able to ask their human resources department or boss; others may work at companies that offer this option through a third-party online payday ID service.
Some “sharing economy” companies do this: Ride-sharing competitors Lyft and Uber, for example, both offer drivers “cash out” options with varying rules and fees.
And some new companies offer the service to anyone who can demonstrate regular paychecks, even partnering with employers. Neither FlexWage nor ActiveHours charge interest; ActiveHours is currently funded by donations and venture capital, while FlexWage charges a fee.
About 200 companies currently use FlexWage, which recently signed a deal with payroll company ADP, according to CEO Frank Dombroski.
Heather Paye has used ActiveHours to help her budget and cover expenses. “It makes me more financially independent,” she said. “I don’t remember the last time I asked my mom for money.”
Payday lenders can deliver money quickly, and because they’re often obtainable in stores, can be convenient. A payday loan is typically for $500 or less, due on the borrower’s next payday, and may require giving the lender access to a checking account or a check for the full balance it can deposit when the loan is due.
Some 12 million Americans take out payday loans each year, according to the nonprofit Pew Charitable Trusts. But those consumers also spend $9 billion on loan fees, according to Pew: The average payday loan borrower is in debt for five months of the year and spends an average of $520 in fees to repeatedly borrow $375. (And they don’t help borrowers build credit, unlike some other options.)
Almost 70% of payday loan borrowers take out a second loan within a month of their last one, according to CFPB research.
The CFPB proposed new rules for payday lenders – including verifying that potential borrowers could repay loans before distributing them, and requiring written notice before a lender debits a consumer’s bank account – in June. The agency has reportedly received about a million comments on the proposal.
Payday loans are often misunderstood, said Dennis Shaul, CEO of the Community Financial Services Association of America, a trade group representing several dozen nonbank lenders. They can be a good option for those who need funds quickly and can repay them in a timely manner, he said, and cheaper than missing a bill payment.
Shaul says he welcomes discussion of more regulation, but worries that the current proposal doesn’t adequately represent borrowers in need of quick loans. “Let’s really have a discussion…that would result in the demand to have real consumer protection,” he told MarketWatch. “I don’t think that dialogue ever occurred.”