Payday lenders do not ask many questions of applicants -- such as their credit history or reason for the advance -- which makes it easy to borrow money quickly. Such convenience comes with a price, however. In Nebraska, the interest rate for a payday loan can amount to more than 400 percent annually, based on a number of fees. Most borrowers, unable to repay the loans within the two-week deadline, end up having to borrow more -- triggering a cycle of debt.
Consultant Mark Koller says that just 2 percent of Americans who get payday loans pay them off immediately. Nebraskans take an average 212 days to repay this kind of debt. “It’s steep, pretty dicey, and you can fall pretty fast,” he said. He is working with a group in Lincoln that is trying to start an alternative to payday loans. The group has federal permission to move toward creating the city's first low-income credit union. Community Hope Federal Credit Union is seeking $300,000 in donations to use as a financial reserve for serving people who live and work in Lincoln. The credit union will focus on the 12 census tracts in the core of the city, where the adjusted median family income is 80 percent the local average. More than 20 percent are below the federal poverty level.
Once chartered by the National Credit Union Administration, Community Hope would be an independent entity with its own board. The credit union would offer loans of up to $5,000, and provide financial literacy education that includes budgeting, saving on a limited income, and homeownership. Instead of two-week loans, the credit union could make loans for six or 12 months.