Posted Aug 28, 2007 09:01 pm CDT
A nonprofit organization with a humanitarian mission is now competing with private companies to offer what has to be one of the most usurious forms of lending around: payday loans. Set up as a short-term fix for those who live paycheck to paycheck and don’t have bank accounts, the controversial loans can quickly mire consumers deep in debt because effective annual interest rates than exceed 500 percent.
Goodwill Industries International Inc., a national thrift store and employer of the disabled and disadvantaged, is offering much lower-cost loans that give consumers a better shot at repayment, in collaboration with Prospera Credit Union, according to the New York Times. The much-criticized private payday loan industry is huge—perhaps as many as 1 in 20 consumers have borrowed from a payday lender—and is prohibited or severely restricted in 12 states under usury laws.
Unlike private payday loan stores, which charge the equivalent of more than 500 percent interest annually by requiring repayment every two weeks and charging a fee to roll the debt over into a new loan if it isn’t fully satisfied, Goodwill’s GoodMoney program reportedly charges significantly less and helps customers reform their financial habits.
For instance, GoodMoney encourages customers to borrow less frequently, for a longer term, at much lower interest, and helps them establish savings accounts, the Times reports. “Our goal is to change behavior, to interrupt the cycle of debt,” says Ken Eiden, president of Prospera and a Goodwill director. However, critics contend that GoodMoney program is problematic because it still encourages consumers to take out loans that aren’t in their best interest.
At least some GoodMoney borrowers disagree. “I have almost $100 in savings,” says Peggy Truckey, 53, a Wisconsin supermarket meat clerk making $9.50 an hour. “I’m in a comfortable position for the first time in many years.”