WINDSOR, Ontario–Windsor Family Credit Union is to become the first in this province to tackle the payday loan industry by offering an alternative product.
Windsor Family will be offering small-dollar, short-term loans at 37% APR, according to the CU’s CEO, Eddie Francis, who announced the new offering during the Association of Municipalities of Ontario annual conference.
Francis told the meeting that municipalities for years have been asking the province to curb the proliferation of payday loan offices, which are often located near low-income neighborhoods and in city centers, easily accessible by people who can’t afford the exorbitant fees but need money immediately, according to the Windsor Star.
“There are more licensed payday providers than McDonald’s or Starbucks,” Francis said.
WFCU said it is also hoping to grow its membership base by eventually moving those who turn to it for its payday loan alternative into full-time members who can then go on to develop good credit histories.
The Windsor Star reported that in Ontario the maximum cost of borrowing for a payday loan is $21 per $100 borrowed, with the government recently issuing a report that proposes three alternatives, from $15 to $19 per $100 borrowed. The WFCU rate is $1.42 per $100 borrowed.
A typical $300 loan taken from a payday lender, Francis was quoted by the Star as saying, would cost the borrower $63 or about 550% in an annual interest rate. WFCU intends to charge that same borrower $4.25 for a $300 advance loan, or an annual interest rate of 37%.
Francis said the fee that WFCU is charging takes into account the high-risk nature of such a loan.
Tony Irwin, president of the Canadian Payday Loan Association, was quoted by the Windsor Star as saying his group is not opposed to regulatory oversight, and that other credit unions have experimented with payday alternatives, but couldn’t make it work with the lower rates. The high risk associated with such loans necessitate the high fees, he said.