Despite state and national statistics showing low unemployment and despite a job market that can be best described as “Help Wanted”, there are an ever-increasing number of people are classified as moderate to low income. Many families find themselves in need of short-term cash, but have few options.
Too often, people are subjected to unscrupulous payday lenders and even cash checks at usurious facilities. Both services proclaim they are provided at a “nominal fee,” but the cost of doing business at these places can quickly soar to uncomfortable and unaffordable levels.
Fortunately, a new trend is emerging to fill this gap.
Many banks and credit unions are stepping up to offer “payday like” loans at reasonable rates of interest and/or a fee.
Financial institutions have also changed policies and cash checks for this group of folks at a much lower cost or no cost at all.
But there remains a disconnect in the process around these short-term loans and the people who need them right away. What is to be done for those who are not bank customers or members of the local credit union?
Experience suggests this is a group that must qualify for services, apply for approval or submit for membership before any conversation can happen.
But compassion can combine with fiscal smarts. Banks and credit unions should cash these payday loan checks, whether they customers/members or not, and grant them the short-term cash loans they need until next payday.
This is not a risky financial move.
Remember, the National Credit Union Association (NCUA) and most state banking/credit union regulators have authorized check-cashing service for non-customer banks & non-member credit unions and, of course, non-customers/members become customers/members when the bank or credit union funds a loan for them. All banks/credit unions need to do is legislate a policy and procedure within their organization and begin helping those in need. Fortunately, many already have.
Short-term cash needs are real.
Banks and credit unions need to ensure that they tailor short-term lending and check-cashing products to meet the needs of the moderate to low-income market segment. Financial leaders should also take steps to ensure these services are delivered in a convenient, expedient and friendly, but professional manner.
However, with this aid must come customer/member financial accountability. Financial education will most likely be an integral part of any effective payday lending-like service. Instilling a regular savings plan that is carried out by the customer/member is paramount if that person has any hope of one day escaping the need for continuous, short-term borrowing. And, a non-customer/member, who cashes checks at a bank or credit union on a regular basis, should also open an account and start a direct deposit. This is a major hurdle, but one that can be successfully met with – yes – financial education and incentives. These simple steps can help break the cycle of payday loan needs.
Some community members’ livelihood is in jeopardy because of poor money management.
The financial sector can help change that with a simple course correction of policy. Effective personal financial management instills confidence, generates peace of mind, and enhances people to be ready to meet the financial hoops that they face on a daily basis. If banks or credit unions are not already actively engaged in providing payday-like lending and cashing non-member checks coupled with financial education, here’s an opportunity to help.
It’s a win-win proposition.
Banks can offer help when it’s needed most urgently, but can also offer a longer-term path towards financial security. In turn, customers can step out from the shadow of their own financial shortfalls.
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