With Arizona’s payday loan industry now history, the state’s credit unions are jumping into the resulting void to both help consumers and gain new members.
Called REAL Solutions, the Arizona Credit Union League & Affiliates’ new program offers an option for consumers who depended on the short-term loans made by the payday loan industry. But in proverbial teach-to-fish fashion, REAL Solutions also aims to help those consumers build long-term financial security.
One service provided by REAL Solutions is a small dollar emergency loan, which allows credit union members to get short-term loans at lower interest-rates than normal payday lenders would offer.
The average payday loan was typically for 14 to 30 days, and the fees varied between $15 and $20 per $100 borrowed. Under this model, a 14-day loan could carry an APR of 520 percent. With REAL Solutions, interest rates vary by credit union, with rates starting as low as 12 percent.
While these loans are an option for consumers, they are not the solution to borrowers who relied heavily on payday loans. However, credit union loans can benefit the borrower in ways that payday loans cannot. If repaid on schedule, the short-term loans can build the borrower’s credit score, because payments to credit unions are reported to credit bureaus, while most payday loans are not. Credit building allows borrowers to obtain better interest rates and terms on their next loan products.
Some credit unions also will put a portion of the loan repayment in a savings account if paid on time. The amount is small, but normally will cover the fee involved in setting up the loan.
Because borrowers can easily fall into a debt trap with payday loans, credit unions only provide members with the opportunity to have one of these short-term loans at a time. This keeps the borrower from getting into a never-ending cycle of taking out a loan to pay off another loan.
Two additional components of the REAL Solutions program are low-interest credit cards and member-rewards programs.
Low-interest credit cards help members gain financial stability. These credit cards are designed to be less of a financial burden on the cardholder by keeping interest rates lower than normal cards.
Credit union members also can enroll in a member-rewards point program, which is similar to a credit card rewards program. The member receives a point for every dollar paid in interest, as well as incentive-based points for continued membership, referring new members or utilizing member-friendly services such as online bill pay. The members can use the points they accumulate for items such as discounted loan rates or even to waive fees they have incurred.
The Arizona Credit Union League realizes that education is the key to financial stability and freedom. Proper financial education on budgeting, debt management, identity theft prevention, building credit, home buying, retirement savings and buying a car are key to being financially empowered.
REAL Solutions includes such benefits as:
- Second chance checking
- Member rewards
- Credit building loan programs
- Free financial education (for all stages of life)
- Short-term, small-dollar emergency loans
- Credit building credit card programs
- Reloadable prepaid debit cards
- Low-cost personal loans
- Overdraft protection
- IDAs (Individual Development Accounts)
- ID theft/fraud services
- Holiday loan skip pay
Each REAL Solutions Credit Union provides independent programs and services. Names of services and programs may vary depending on the credit union.
Arizona credit unions participating in REAL Solutions:
- AEA FCU
- Alhambra CU
- Altier CU
- American Southwest CU
- Arizona Central CU
- Arizona Federal CU
- Bashas’ Associates FCU
- Canyon State CU
- Credit Union West
- Desert Medical FCU
- Desert Schools FCU
- First Credit Union
- Hughes FCU
- MariSol FCU
- Mohave Community FCU
- Pima FCU
- Pyramid CU
- Southwest Health Care CU
- Tempe Schools CU
- TruWest CU
- Tucson Federal CU
- Tucson Telco FCU
- Vantage West CU
Austin De Bey also contributed to this article. He is vice president of governmental affairs for the Arizona Credit Union League & Affiliates. For more information about the REAL Solutions program and the credit unions that offer it, visit the Arizona Credit Union League website at www.azcreditunions.coop.