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Slide 1: Microfinance in the U.S. Providing access to non-Predatory Financial Institutions via Community Development Credit Unions Jeremiah Tillman & Ron Chin May 28th, 2009 IgniteChi.org
Slide 2: Predatory financial institutions IgniteChi.org
Slide 3: How Do Payday Loans Work? • Unsecured loan on a future check • Typical interest rate of 15% • for a 2 week period • Many customers carry a balance IgniteChi.org
Slide 4: How Do Payday Loans Work? • Implications? Annualized interest rates (EAR): • • • • Mortgage Student Loans Credit Cards Payday Loans ~ 5-7% ~ 7-8% ~ 10-20% ~ >3500% • Many customers carry a balance… EAR: Effective Annual Rate, takes into account compounding Source: www.bankrate.com, www.en.wikipedia.org/wiki/Payday_loan IgniteChi.org
Slide 5: How Do Payday Loans Work? Interest vs. Loan Type • Many customers carry a balance… 25 Interest Rate (EAR) • How much would a $100 loan cost to pay back at the end of 1 year? 20 15 10 5 0 Mortgage (30yr fixed) Mortgage (30yr fixed) Student Loan (private) Student Loan (private) Credit Cards (low Credit Cards interest) (high interest) Type of Loan IgniteChi.org
Slide 6: How Do Payday Loans Work? Interest vs. Loan Type 4000 25 3500 20 3000 Interest Rate (EAR) 2500 15 2000 10 1500 1000 5 500 00 Mortgage Mortgage (30yr (30yr fixed) fixed) Mortgage Student LoanLoan Loan Loan Credit Credit Cards Payday Loans Mortgage (30yr Student StudentStudentCredit Cards Cards (low Credit Cards (30yrfixed) fixed) (private) (low (high interest)(high interest) (private) (private)(private) interest) interest) Type of Loan Type of Loan IgniteChi.org
Slide 7: How Do Payday Loans Work? Interest vs. Loan Type (Logarithmic Plot) Interest vs. Loan Type 10000 4000 25 3500 20 3000 1000 Interest Rate (EAR) 2500 15 100 2000 10 1500 1000 10 5 500 0 01 Mortgage Mortgage Mortgage (30yr (30yr fixed) (30yr fixed) fixed) Mortgage Student LoanLoan Student Loan StudentStudentCredit Cards Cards (low Credit Cards Loan Loan Credit Payday Mortgage Mortgage (30yr Student Student Loan Credit Cards Credit Cards Payday Loans (30yrfixed) fixed) (private) (private) (low (30yrfixed) (private) (low interest) (high interest)(high Loans (private) (private)(private) interest) interest) interest) Type Loan Type of Loan Type ofofLoan IgniteChi.org
Slide 8: Who Uses Payday Loans? • Younger consumers with limited understanding of finances • Consumers who are deeply in debt • Consumers who are struggling to meet their day-to-day financial obligations • Those who have a history of using high-risk lenders IgniteChi.org
Slide 9: Impact on community •Payday loans are extremely expensive. •Don’t help you solve the problem at hand. • Can have drastic effects on credit scores. IgniteChi.org
Slide 10: What can be done? IgniteChi.org
Slide 11: Asset Based Community Development – Credit Unions IgniteChi.org
Slide 12: Who Owns a Credit Union? IgniteChi.org
Slide 13: Who Runs a Credit union? IgniteChi.org
Slide 14: What Products do Credit Unions Offer? ๏ ๏ ๏ ๏ ๏ ๏ ๏ Health Savings Accounts Home Equity Loans Home Loans Identity-Fraud Protection Internet Banking IRAs Line of Credit IgniteChi.org
Slide 15: What Products do Credit Unions Offer? ๏ ๏ ๏ ๏ ๏ ๏ ๏ Line of Credit Local Advantage Privacy Policy Refinancing Safe Deposit Box Savings Trusts IgniteChi.org
Slide 16: What Products do Credit Unions Offer? ๏ ๏ ๏ ๏ ๏ ๏ ๏ Business Banking Checking Accounts Club Accounts Debit-Credit Cards Deposit Insurance Direct Deposit Education Loans IgniteChi.org
Slide 17: How Competitive are Credit Unions? Very Competitive IgniteChi.org
Slide 18: Is Your Money Safe at a Credit Union? IgniteChi.org
Slide 19: In Conclusion… Community Development Credit Unions www.cdcu.coop IgniteChi.org