Payday Loan Times

Vincent Fulginiti found himself mired in debt earlier this year from a payday cash advance that he couldn’t pay off. But he credits a credit union with helping him out of a bad fix.

With bill collectors on his heels, the Brevard County father of four told his credit union about his predicament. The financial co-op gave him a personal loan at 15 percent to cover the triple-digit-rate payday loan.

Four months later, Fulginiti has paid off the personal loan, boosted his credit score by more than 100 points and secured a small-business loan from Kennedy Space Center Federal Credit Union for a fencing business.

“My credit score wasn’t the best, but they gave me a shot. They gave me a chance,” said the 45-year-old maintenance technician, who worked for a private company. “And boy, it was like what a load was off my back. I don’t know what I would have done without it.”

Fulginiti was fortunate to find a way out of the debt trap he had fallen into, consumer advocates say. It is not widely known that credit unions have long offered small-dollar loans to members in a cash crunch.

But in recent years, with large quick payday loan lenders wielding big advertising campaigns and reeling in flocks of customers, credit unions are trying to better promote the alternatives, industry officials said.

“We’ve always provided a better option, but now we’re just trying to raise the visibility of what we’re doing,” said Fred R. Becker Jr., president of the National Association of Federal Credit Unions, a trade group in Arlington, Va. “Obviously, however, we have less marketing money than a multimillion-dollar, publicly traded payday-lending company.”

Many credit unions are gradually reaching out to people who might be “in the market” for a cash loan, he said. A few credit unions have even used the term “payday loan” in their promotions, although it is still set up like a conventional installment loan with, at most, an 18 percent rate, instead of triple-digit rates associated with payday advances.

Payday lenders dispute any suggestion that their loan costs are out of line or that they are taking advantage of people. They say they are meeting a demand, offering a service and extending credit to people, often with credit problems, who otherwise would not be able to obtain a loan from mainstream financial institutions, including credit unions.

Neither credit unions nor banks are prepared to take the riskier customers that faxless cash advance lenders serve, said Ian MacKechnie, CEO of Tampa-based Amscot Financial Corp., one of the state’s fastest-growing payday lenders.

“We welcome the competition of credit unions getting into the business of small loans,” he said. “But I tell you, some of them are charging roughly the same rate we charge, and yet they’re saying they’re trying to help people.”

A customer must first be a member of the credit union by opening a savings account with a minimal balance. Repayment terms and conditions are set up over a period of months. And, in some cases, the credit union can set up a direct deduction from a paycheck to repay the loan.

“What we try to do is encourage people to build their savings so they’ll be ready for any cash crunch,” said Joe Melbourne, CFE’s president. But if we feel they do need something like the outreach loan, we let them know it’s available.”

In May, Kennedy Space Center Federal Credit Union offered teachers in Brevard and Volusia counties an “Add-a-Payday” loan - using a play on words to describe their new bad credit cash loans. The short-term, zero-interest loan is designed to help teachers who will miss a pay period later this summer because of a quirk in the payroll schedule. Space Coast Federal Credit Union has offered a similar deal.

The loan for teachers is a temporary offer, but the KSC credit union is considering a more permanent marketing campaign that would promote small-dollar loans as a payday-loan alternative, said Janice Hollar, co-op president.

“It’s such an expensive product for consumers,” she said. “Once they get in the debt cycle, it is very hard to get out. We feel we can provide a viable option for them.”

Some consumer advocates said the credit unions’ efforts are laudable, but fall far short of reaching the critical mass of instant payday loan customers.

“I really don’t hear of any credit unions actively promoting their alternatives,” said Lynn Drysdale, a consumer lawyer in Jacksonville. “Besides, it is very difficult to compete with the marketing that payday lenders do, like TV commercials and full-page newspaper ads. These days, you also have a lot of it on the Internet as well.”

The faxless payday advance industry has had a profitable run in Florida in recent years, despite the state’s effort to regulate it more closely by implementing reforms in 2002 that capped rates and fees, among other things.

Payday lenders sold 4.3 million in loans totaling $1.6 billion at an average rate of 281 percent in 2006, according to the Center for Responsible Lending, a watchdog group in Durham, N.C.

Earlier this year, the Community Financial Services Association, the payday lenders trade group, launched a national public-service campaign urging people to use payday loans responsibly and only for emergency needs.

Vincent Fulginiti, the Brevard County maintenance worker, said it was an emergency that caused him to get a cash advance, a decision he later regretted.

“My van broke down and I had to get it fixed so I could get to work,” he said. “With four kids and big family, I really didn’t have any money saved, so I borrowed $500 at the payday-loan place. Before I knew it, I owed $825 and they said the whole amount was due. They just kept charging interest and putting you deeper in the hole.”

SOURCE: The Orlando Sentinel