A Vancouver credit union has created a bank loan to help customers escape the vicious cycle of payday loans.
“We’ve seen people with two or three different loans out with different payday lenders, and all they’re doing is paying them back off each other,” Linda Morris, vice-president of business development at Vancity, told Business in Vancouver.
Members of Vancity can apply for a “fair and fast loan” in amounts ranging from $100 to $1500. The credit union is offering a more flexible pay back schedule and much lower interest rates than your typical payday loan: customers would pay $2.20 interest on a $300 loan if they paid it back in two weeks. That compares with $69 — the maximum amount of interest a payday loan company can charge under B.C. law — on the same $300.
In 2013, 100,000 B.C. residents took out 800,000 payday loans.
“That’s a lot of people who are paying quite a bit, probably because they have an urgent need at that moment, they’ve fallen behind on their bills,” Morris said.
“They can’t find the kind of service they need at a traditional lender, and so they’ll go to a payday lender to get that money short-term, usually a two week loan.”
A borrower can take up to two years to pay back the loan. While Vancity will accept a slightly lower credit score than for a conventional loan, and will consider bill-paying history over the past three months, not all members will be eligible for the loan.
If a member is ineligible for a loan, Morris said, the credit union will still provide financial advice or refer them to a credit counselor.
The program has been running since April, and Vancity has already made hundreds of the loans. The average term is around 11 months, Morris said.
“We’ve had someone who came in recently who was able to use a $1500 [loan] to pay off all her [payday] loans and stop that cycle,” she said.
@jenstden
