Treasurer backs payday loan alternatives

in Chicago's Kenwood-Oakland neighborhood

Thursday, December 6, 2007

A federally designated low-income credit union in Chicago’s Kenwood-Oakland neighborhood will use a $20,000 deposit from Illinois State Treasurer Alexi Giannoulias’ Office to provide loan alternatives to predatory lenders.

Cosmopolitan Federal Credit Union, a church-based credit union at 5359 S. Wabash Ave., will use the state funds provided under the Opportunity Illinois program to offer low-interest loans to its members.

“Low-income families often find it difficult to receive the same financial services that middle-income families take for granted,” Giannoulias said. “By partnering with Cosmopolitan Federal Credit Union, the State Treasurer’s Office is pumping money into the local economy and helping working families manage their money responsibly.”

Cosmopolitan Federal Credit Union was chartered in 1985 and has been designated as a low-income credit union by the National Credit Union Administration. It has 283 members and offers savings accounts, loans and financial counseling.

Prior to the state deposit, Cosmopolitan Federal Credit Union offered personal loans at 7 to 9 percent annual interest rate, depending on a borrower’s credit score and other loan terms. The state deposit will allow the credit union to reconfigure its loan matrix and offer loans at a reduced rate.

“This program allows us to provide an immediate service to our constituents so they do not pursue avenues such as payday loans with exorbitant interest rates,” said Mary Melchor, a member of the credit union board of directors and assistant treasurer for church.

Payday lenders typically grant small cash loans of $100 to $500 with payment due at the borrower’s next paycheck. Finance charges range from $15 to $30 per $100 borrowed for a two-week period, which can translate up to 780 percent when expressed as an annual percentage rate.

Giannoulias has earmarked $1.7 million for low-income designated credit unions throughout Illinois to assist state residents who don’t have access to services offered by traditional banking institutions.

Federally designated low-income credit unions serve customers who make less than 80 percent of average wage earners, a figure established by the Bureau of Labor Statistics. In Chicago, the average is adjusted by 7 percent to account for the increased cost of living. Most are low-income minorities or immigrants.