Ig1 Microfinance in the US

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What is your annual interest rate for your student loans, mortgage, or credit cards? 5.00%, 7.00%, 15.00%, 25.00%, or even 36.86%

Multiply that by 100.

Would you borrow money at this rate (3686%)? Or allow anyone you know to do the same?

This is happening today. Here in America. In a neighborhood near you.

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I will discuss the payday loan and check-cashing situation in certain neighborhoods, aka the lack of access to non-predatory financial institutions, in America, and one possible approach towards providing equitable access to financial resources to assist with asset-based community development.

Published in: Economy & Finance, Business
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Ig1 Microfinance in the US

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

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