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August 28, 2007, 01:35 PM ET
Nonprofit Loan Programs Criticized
As nonprofit organizations and credit unions offer people saddled with crushing “payday” debt comparatively manageable ways to pay it off, some question whether the loans are just another layer of predatory lending practices, The New York Times reports.
Traditional payday stores provide quick loans with no credit checks and can charge annual interest rates of more than 500 percent, causing borrowers to take out more such loans to pay off finance charges.
But nonprofit programs such as GoodMoney, in Appleton, Wis., encourage borrowers to consolidate their debt in lower-interest term loans. If a borrower cannot repay a loan after rolling it over twice, the borrower can get the loan interest-free by attending credit counseling sessions offered through a nonprofit group.
At GoodMoney, borrowers pay an annual rate of about 252 percent. The program is a collaboration between the local Goodwill and Prospera Credit Union.
But such alternative loan programs have also drawn criticism.
Some consumer advocates say that while the programs may offer nearly half the annual interest rate of commercial payday lenders, “it’s still the same debt trap,” said Uriah King, a policy associate at the Center for Responsible Lending, a nonprofit advocacy group in Durham, N.C. Even with the lower finance fees, Mr. King said, most borrowers have to roll the loans over.
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