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Stephanie Vann used to rely on payday loans to cover her rent and summer camp for her three children. She felt ashamed and kept her finances secret. But the short-term, high-interest loans seemed to be her only option.

Now, if the single mother needs a loan, she works with the Treasury Department Federal Credit Union. She can get longer-term loans for small amounts to tide her over -- and at vastly lower interest rates.

In January, legislation went into effect capping interest rates in the District at 24 percent, effectively driving out the area's payday lenders, whose business model is wedded to annualized rates of 300 percent and above. Credit unions are now slowly filling the void in small-dollar loans. At least half a dozen District institutions are attempting to reinvent the loans as a tool to help bring hard-pressed borrowers closer to financial health.

The credit unions' products vary, but generally they are loans of $300 to $1,000 with an annual percentage rate of up to 18 percent. Unlike payday loans, in which borrowers sign over part of their next paycheck for the cash advance, the credit unions' new products have longer terms, from thirty days to a year.

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some time ago, circa 2003, the lending regulations for credit unions were changed, due to the work of the big banks, to force them to use the same lending practices as the banks. they now no longer give out loans under $5,000, and while your paycheque used to be sufficient for qualifying, you now need assest or a co-signer for loans, just like at a bank. so buh-bye micro-loans at a good interest rate.

additionally, CUETS, the pooled credit card arm of the credit unions in canada, issuing credit union Mastercards, was recently purchased outright by Bank of America. this now puts them under the purview of the Helms-Burton Act in the states, meaning your card will no longer work in Cuba, as well as the Patriot Act, so all your credit card activity can now be accessed by the US govt. at any time. so much for sovereignty and privacy .

i have recently begun to switch all my banking in Toronto over to TD-Canada Trust. why? the fees are lower than both Alterna and Desjardins, i plan on visiting Cuba sometime in the near future, and since the merger of Metro Credit Union, who were excellent, and CS Co-op, all of us former Metro members were slotted on the CS account structure and fees have gone through the roof, the customer service sucks to levels i didn't think were possible, and if you are low income or have no assets, cannot loan you any money.

ETA: posted at the same time, farnival.

Credit unions are provincially regulated so these changes you speak of only affect Ontario,do they not?

[ 28 July 2008: Message edited by: jester ]

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BANGKOK, Thailand — Eleven microfinance groups that together serve nearly 26 million people agreed Monday to publicly report their annual interest rates, a move many hope will empower the world's poorest borrowers as the once-charitable sector becomes increasingly commercialized.

“If you are making profits you are moving into the same mental mindset as loan sharks,” Nobel Peace Prize winner Muhammad Yunus told The Associated Press in a telephone interview from Bali, Indonesia, where he is attending the 11th annual Microcredit Summit Campaign conference that opened Monday.

When Mr. Yunus began making $27 (U.S.) loans to women in Bangladesh three decades ago, he hoped to rescue the poor from usury. The new language of microfinance, which turns on words like “return on equity,” today weighs heavily on his mind.

He believes interest rates should be set to cover costs, not maximize profits.

“Microcredit is about helping poor people get out of poverty,” said Mr. Yunus, whose pioneering bank, Grameen Bank, has already signed on to the new MicroFinance Transparency initiative.

Grameen is owned by the poor borrowers it serves, and sustains itself with local deposits. The bank reported a narrow profit of 106.9 million Bangladeshi takas ($1.6-million) on revenue of 10.6 billion takas ($155-million) in 2007.

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Hmmm... For profit banking seizes on the micro-credit market.

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Originally posted by Zak Young:
Payday lenders aren't as great an option as going to a credit union or a bank, sure, but the reason people use them is because they can't use a credit union or a bank - due to whatever reason (bad credit generally). Any attempt to curb them or regulate them (like a law that says you can only charge 12% interest for example) is only going to result in the people who would go to them having no one to go to. So instead of having to pay a loan with high interest rates they have to go without food or get evicted because they miss rent payments one too many times.

Not a great solution, imo.

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You would rather they go without food to pay a loan with usurious interest rates huh?

Payday loan sharks prey on the poor because the poor have no options.