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Southwest 66 CU Helping Members Break the Payday Loan Debt Trap
Friday, March 28, 2014 6:50 AM

Sean Cahill, president and CEO of Southwest 66 CU, says he wasn’t surprised to read in the Leaguer this week that four out of five payday loans are rolled over or renewed within 14 days.

“Bad things sometimes happen to good people, and unfortunately, many consumers reach out to payday lenders in an emergency situation where they need immediate funds,” notes Cahill. “Unable to pay it back in full by the next pay period, some have no choice but to roll it over and that’s how they find themselves in a debt trap with seemingly no way out.”

Cahill says Southwest 66 CU will test Borrow and Save, a small dollar loan product benefiting low-and-moderate income US consumers, as part of Filene Research Institute’s accessible financial services incubator. Southwest 66 Credit Union joins 11 other credit unions in testing the product’s viability with mainstream financial institutions over the next 18 months.

According to Cahill, the “Borrow and Save” product is designed to help consumers break the payday loan debt cycle and develop stronger savings habits.  

“For starters, we offer an alternative that has a much lower interest rate and fee structure, allowing members to get out of the debt much sooner than a payday lender,” explains Cahill. “Second, we have a term longer than the typical two weeks which allows the member peace of mind in repaying the debt without having to roll right into another loan to finance the fees and charges from a payday lender.”

And perhaps most importantly, the credit union is offering a savings component to the short term loan. 

“This is critical as the next time a member falls into a short term loan situation they can use their savings rather than getting a new loan,” says Cahill. “By developing a process where good savings behaviors are established, we hope to help our members financially, and remove some of the stress around emergency cash needs when they arise.”

The Consumer Financial Protection Bureau’s Many Payday Loans Become Revolving Doors of Debt study is available on the agency’s website.