Some organizations in Iowa, such as Bank On Dubuque, are trying to create alternatives to payday loans that help people who are unbanked open accounts. The program works with financial institutions, banks and credit unions that provide second-chance bank accounts and small dollar loans.
The goal is to lower the barriers people face, including fears and lack of knowledge about how loans or credit works, said Eric Dregne, vice president of programs with the Community Foundation of Greater Dubuque, which heads the Bank On Dubuque initiative.
Paula Connors, who volunteers with the Bank On Dubuque program, said the program got its start when community members noticed an upswing in the number of payday loan and check cashing businesses in the area.
“I’ve talked with several representatives from credit unions and banks and people have come to them and said they can only afford to pay down the interest rates [on their payday loans] and can’t afford to pay the principles,” Connors said.
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Dupaco Community Credit Union is one of the financial institutions involved in the Bank on Dubuque Initiative. David Klavitter, senior vice president of marketing and public relations for Dupaco, said the credit union offers the small-dollar loans and second-chance bank accounts to members, which can help people who might otherwise be denied a traditional loan and could turn to payday lenders. But the credit union does check credit history.
“If someone had a problem with paying off a loan in the past, they might need to pay a little more, but not as much as at other places. Members trust us with their money, so you just don’t lend it out without some kind of risk management,” he said.
The union also offers financial education programs to members, which Klavitter said is key to helping people with poor credit histories improve their finances. Often, this education takes time and requires one-on-one teaching.
“Financial behavior is a learned behavior. It takes time for people to change those behaviors and develop these skills,” he said.