Pa. treasury puts $20 million behind credit union lending program
By Kim Leonard
Thursday, October 19, 2006
The Pennsylvania Credit Union Association and the state treasury kicked off a $20 million program today that is designed as an alternative to short-term, high interest payday loans, which can trap consumers in a cycle of debt.
Credit Union Better Choice is being offered to members or those who meet membership requirements at 37 credit unions statewide to start, with 129 locations.
Through the program, a consumer can get a 90-day installment loan of up to $500, at an interest rate up to 18 percent. There also is an application fee, a maximum $25.
The credit union association said its costs are lower than those at typical, storefront payday lenders. Another advantage is that the participating credit unions will deposit 10 percent of the loan amount into a savings account in the borrower's name.
To support the program, the state treasury has agreed to put $20 million into an interest bearing account in the credit union system, the association said.
The state Department of Banking also provided guidance for the program.
Last month, the department sued a lender that switched from making traditional, two-week payday loans -- rolled over at higher interest rates -- to selling credit lines or installment loans.
The Commonwealth Court lawsuit against Advance America of Spartanburg, S.C., contends its practices are illegal because interest rates exceed those allowed under state law. Since June, Advance America has been selling a $500, short-term line of credit, for a monthly "participation" fee of $149.95 and a 5.98 percent interest rate.
Credit unions participating in the Better Choice program in the Pittsburgh area include the A-K Valley FCU in Lower Burrell; Cal-Ed FCU in California, Washington County; Keystone United Methodist FCU in Cranberry; Pittsburgh FCU in Mt. Oliver; Pittsburgh Central FCU; VA Pittsburgh Employees FCU and West-Aircomm FCU in Beaver.
Kim Leonard can be reached at email@example.com or (412) 380-5606.