After 30 years of working with credit unions that are on the front lines of serving low-income people, you'd think no financial horror stories about the victimization of the vulnerable would surprise or shake me. Been there, done that?
Not really. A page-one story from the Wall Street Journal on Feb. 12 was enough to rekindle my–and many other credit union peoples'–fire about financial abuse and the absolutely critical role our movement must play in America's economic life. WSJ's "Social Insecurity: High-Interest Lenders Tap Elderly, Disabled" recounts the growing penetration of these two "market segments" by high-cost payday lenders, to devastating effect.
Payday lenders, who charge annualized interest rates of hundreds of percent for short-term loans, cannot directly tap the Social Security or checks of the elderly or of people with disabilities. That was a problem for these lenders, since millions in these groups were "unbanked." However, in one of the most bitter, ironic examples of unintended consequences, the federal government's successful push over the last ten years to have payments deposited directly into bank accounts has opened up this new market opportunity for payday lenders. According to research provided to the Wall Street Journal, the lenders now facilitate direct-deposit relationships for prospective borrowers–and once these accounts are established, are able to automatically deduct the usurious loan payments with ease.
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The article recounts two especially heartbreaking stories. Melvin Bevels visited a Small Loans store in Sylacauga, Ala., in 2002. Illiterate, he agreed to the store's helpful assistance in directing his $565 monthly benefit payment to an out-of-state bank, which the payday lender then accessed to get its money. His financial situation deteriorated; the utilities in his trailer were shut off; and ultimately, this gentleman–who believes he is about 80 years old–was sued by the lender. Fortunately, the suit was thrown out, and Mr. Bevels was able to move into public housing.
Even worse, consider the case of Jennifer Rumph, a single mother of three; she and her teenage son have disabilities. She went to Miracle Finance, Inc. for money to buy her children a computer. The $600 computer wound up costing $1,326, according to the Wall Street Journal. Repayment came from her teenage son's disability check. When she could not pay, the company sued her, winning a default judgment. She fell behind on her rent, after her son's entire disability check for one month was taken to make a payment. She lost utility service and was almost evicted. Then, one day, "as she was getting ready for church, two sheriff's deputies came to Ms. Rumph's home, handcuffed her in front of her children, and hauled her away." She was jailed briefly. She still owes "more than $5,000 on loans from almost a dozen other lenders," according to the article. She can't repay them.
There are probably thousands of stories like that being played out across the country, even while the foreclosure crisis is causing other enormous economic dislocations in our country.
What can we–must we–do as credit unions?
It is encouraging that many credit unions of all kinds have begun to develop alternatives to payday lending. We need that, and on a much larger scale. But there are still far too many people that fall between the cracks, and are not likely to be reached by current initiatives. The low-income elderly are less likely to be credit union members. People with disabilities, especially, are far, far more likely to be "unbanked" than the general population. And the unfortunate reality is that these groups do not rank high in the strategic plans of most credit unions in the United States. They're not easy to serve, and they're not very profitable. Many credit unions do not have a field of membership that includes these groups.
But increasingly, many credit unions do have community or otherwise expansive fields of membership. They should think seriously about expanding their efforts to reach the elderly and disabled, as part of their social mission–and yes, as an obvious justification for their tax exemption.
For several years, the Federation has invested in CDCUs to help them finance alternatives to payday lending. Several years ago, the Federation began an initiative to help people with disabilities–a group vastly overrepresented in the poverty population, as well as in those who are unbanked. We have joined forces with a number of prominent national and local disability organizations, such as the National Disability Institute, to link people with disabilities with the financial system, and wherever possible, to open credit union accounts. We offer a special deposit program–our PRIDEs?,,?, or Predatory Relief and Intervention Deposits–that shares the risk of loans made by credit unions to borrowers with disabilities, to aid them in purchasing assistive technology and to escape from or avoid high-cost lenders. We hope to do much more in the future.
I'm sure that there is not a credit union in the country that is unsympathetic to the plight of these vulnerable populations. We all need to translate these feelings into action. If not us, then who? If not now, then when?
Clifford Rosenthal
President and CEO
National Federation of Community Development Credit Unions
New York, NY
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