Today's New York Times has an article about payday loans, with a surprising twist: some are offered by a non-profit organization.
Payday loans have become an increasingly popular way for low-income Americans to try to make ends meet. The loans are often for relatively small amounts, and short periods of time, but the interest can be incredibly high, amounting to over 500% in terms of an annual rate.
Peggy Truckey, 53, knows the allure. Last year she owed nearly $1,300 to four of those stores, and was paying about $600 a month in finance fees alone. “I thought I was going to have to take a second job just to pay off the interest,” Ms. Truckey said.
Then she heard about a new nonprofit program operated out of a Goodwill thrift store, one of several hundred lower-cost payday loan products that are now being tried by credit unions around the country. She got a payday loan, at half the finance charge, but also something more: help converting all her two-week payday debts, which charged the equivalent of more than 500 percent annual interest, to a one-year loan at 18.9 percent, bringing her monthly payments down to a manageable $129. A few dollars from each payment go into a savings account, the first she has had in years.
“I have almost $100 in savings,” said Ms. Truckey, who earns $9.50 an hour as a supermarket meat clerk. “I’m in a comfortable position for the first time in many years.”
Not everyone approves of what GoodMoney is doing-- their non-profit payday loans may have lower interest rates, but "lower" may mean "only" 200% instead of 500%-- still tough for a low-income person to manage. And some think that these loans just reinforce a kind of behavior that should be avoided entirely. But for people at near-poverty level, there may not always be other options, and their situation can go from bad to worse in no time:
Dan and Julie McGrath cannot say whether the program would have helped them. Three years ago they took a $150 payday loan to follow Mrs. McGrath’s daughter to an out-of-area basketball game. Before long they had loans at five payday stores, and some $2,000 a month, about two-thirds of Mr. McGrath’s income, was going to finance charges.
On a recent evening, the couple huddled outside a weathered 22-foot trailer on property owned by Mrs. McGrath’s parents 90 minutes away near the Michigan border. Since the couple lost their house, this has been their home. It has no hot water or working toilet. In moving, they gave up custody of Mrs. McGrath’s teenage children.
Recalling the way the loans had piled up, Mr. McGrath, a 41-year-old maintenance mechanic, said: “We thought, ‘O.K., we can get this one over here and pay off these others.’ But it never works out. I’d need a set of tires for the car: back you go.”