Payday Can’t Come Fast Enough

The woman ahead of us in line at the convenience store had a bit more than the impatient, bored look we all shared. She held her head high and spoke to the cashier in a friendly tone, paying for the gasoline she was going to pump. Like many people at this store, in this part of St Paul, she paid with cash – but hers came in crisp twenties slid neatly out of a bank envelope. After we paid our own way out of the line I asked my daughter if she noticed. “My guess is she just cashed her paycheck because she doesn’t have a bank account,” I told her. It was a good guess, because it turns out that more than 17% of that particular neighborhood’s households have no bank account – and many rely on the UnBank check cashing up the street.

There are many reasons people don’t have bank accounts, up to and including the fact that check cashing stores can actually be cheaper than fees on everything. But some people wind up using these places for a “Payday Loan”, or a one-month advance on the next paycheck. A recent study shows that people who do this have to take out another loan the next month to pay off the first, and so on – with 62% eventually hitting 7 or more months in a row, the point where the interest payment exceeds the loan amount.

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Credit Unions

Fed up with banks?  You’re hardly alone.  Credit unions have grown dramatically in the last 20 years, fueled largely by high fees charged by commercial banks.  Low rates for ordinary loans are also a big draw.  But for all the growth, not much has been written about credit unions other than the occasional puffy story about how much a consumer can save by ditching their bank.  That’s not to say that the growth has gone unnoticed at all – or indeed that it isn’t creating its own problems that need to be addressed.

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