United Way looking at alternative to payday loans

The United Way of Southern Cameron County is developing a pilot project to provide an alternative to payday loans and other lending practices that target people who don’t have access to traditional credit, but are in need of short-term loans.

"Families need access to credit, and we know that it is necessary to offer an alternative to payday loans if we want to help families get off the tightrope of financial instability," said Traci Wickett, president of United Way of Southern Cameron County.

The pilot project would offer short-term loans of several hundred dollars. The loans would be made by a number of local employers for the benefit of their employees.

The maximum interest rate would be 18 percent annually as opposed to the rates charged by payday lenders, which can add up to 300 percent or more.

"A grant has been received to pilot this project and steps are being taken to identify the workplaces that will participate in the pilot and to finalize capitalization of the loan fund," Wickett said.

The amount of the grant wasn’t immediately available.

Wickett said that the pilot project would be tentatively launched in the coming year.

United Way organization began convening the financial community about four years ago to discuss financial stability issues in southern Cameron County, Wickett said.

"One of the issues that kept bubbling up was the proliferation of predatory lenders in our community," said Wickett of the lenders that are unregulated and operate under the guise of title loans, payday loans and rapid refunds.

Predatory lenders have not gone unnoticed by Texas Attorney General Greg Abbott.

Abbott notes on his Web site that one payday lender that he sued was charging fees and interest on short term advances that added up to more than 700 percent interest.

"The cost of an unsecured, short term loan can be ruinous," Abbott said.

Wickett said that United Way’s first foray into offering an alternative to predatory loans was when it and its partners began offering Volunteer Income Tax Assistance sites where people eligible for the Earned Income Tax Credit (EITC) could have their tax returns prepared by IRS-certified volunteers at no charge.

Wickett said that this helped people avoid rapid refunds, which "are nothing but extremely high-cost, short-term loans."

More than $1.6 million in EITC was brought back into the community through the sites, "and not a single one of the families we prepared taxes for was offered a predatory loan while we prepared their taxes," she said.