Monday, November 10, 2008

Redeemed?

"The last thing I want to tell someone who's been my customer for 20 years is, 'You've been a fool for 20 years, you never should have been coming in'... I want to create choice."

Douglas McGray, "Check Cashers, Redeemed," The New York Times Magazine,November 9, 2008

That bit about choice tells a lot of the story about check cashers and payday lenders. Low-income folks have few choices when it comes to financial services, even when they have a bank account. Alternative financial service providers supply accessible, customer focused products that overlook problems of credit and identification for a price. In one Baltimore neighborhood residents said they wanted a check casher brought into the neighborhood for just these reasons. And tight family budgets sometimes make payday loans and RALS (rapid anticipation loans) a necessity.

Along comes Tom Nix who sold his check cashing chain in California to one of the country's largest credit unions, Kinecta Federal Credit Union, and then got retained to put a credit union office in each check casher. Prices on payday loans are being dropped a bit and rebates are offered.

"The fees are still astronomical, and more troubling, right now the average borrower at Nix takes out seven loans a year -- with fees that can equal an annualized interest rate of 312 percent."

I'm not sure redemption is really in sight. And my sense is that the mainstream financial services industry is the culprit that needs redemption, especially after binge drinking at the federal trough. And don't forget the stagnation of wages and the creation of more low-wage jobs.

Maybe enlightened check cashers are the best we can do.

1 comment:

James W. said...

Well, I have used these services because, as you said, I had no choice. They suck, but people without options need them in some form. And that 300+% interest number is misleading: no one keeps these loans for a year, they're usually for 2 weeks and I used to pay $130 back per $100.