In the past some individuals found themselves relying on short-term or “payday” loans to make ends meet until their next paycheck while paying exorbitant interest rates. However, in early 2008, legislation was passed in D.C. that limited the rates on these loans to 24 percent, forcing these higher-rate lenders out of the market.
What alternatives are people finding to meet their short-term needs? Several D.C. institutions are filling the void with small-dollar loans at much more reasonable rates. One notable replacement is offered by the Treasury Department Federal Credit Union (TDFCU).
Members can obtain lower-interest-rate loans that can cover them for longer periods of time than they previously could with the payday loans. Unlike the payday lenders’ format of charging annualized rates of 300 percent and more, the credit union offers various products with interest rates up to 18 percent, within the limit per the federal government.
The small-loan products offered by the credit union vary in amount, usually between $300 and $1,000. Also, rather than committing part of their next paycheck, borrowers can take a longer time to pay back the money; usually from thirty days up to one year.
The payday loan alternative described here is referred to as the T-loan. This product offers the lender a small amount of cash that is repaid within one year or within the schedule that the borrower chooses.
Credit unions are designed to fill the needs of the moderate income population. As TDFCU meets the challenges of serving this group of people in a fair manner, new members are inclined to join the credit union, creating a win-win situation for both sides. Although these small loans themselves do not create a large amount of revenue for TDFCU, credit unions often find that providing these convenient services entices new members to open other accounts within their institutions.
Credit unions are nonprofit organizations and co-owned by their members. They also offer consumers the advantage of being regulated by the federal government, which controls interest rates that can be charged on loans.
In general, credit unions have been growing rapidly over the past several years. Previously, many have typically marketed only to existing members. With the changing economy and community-based charters, however, many are now also increasing their memberships by reaching out to the general population.
TDFCU, chartered in D.C. in 1935, is comprised of more than 24,000 members. At the end of 2006, the credit union reported greater than $159 million in assets.
Membership eligibility in TDFCU includes individuals who live or work in the Washington, D.C., area in addition to several federal agencies. Family members are also entitled to belong once an eligible member joins.
The credit union offers a wide range of other financial loan products in addition to a variety of deposit products. There are several types of secured as well as unsecured loans available.
The credit union not only offers a wide range of products and services for its members and potential members, but also provides financial information and tips via its website at www.tdfcu.org.
