The most frequent defense I hear of payday lenders it that there’s a demand for the kind of short-term low-dollar loans that they provide that aren’t provided by other financial institutions, and even if they were those institutions don’t exist in the neighborhoods that generate the demand for these loans. That doesn’t come close to justifying the payday lenders’ exorbitant rates and fees or their predatory practices, but I admit that there’s a need that will get fulfilled one way or another. Given that, wouldn’t it be preferable by far to have more reputable financial institutions in the neighborhoods that need these services, operating in a manner that serves the customers rather than preys on them? One such institution is giving that a try in San Antonio.
Select Federal Credit Union (SFCU), an outspoken opponent of the payday lending industry, is trying to fill the gap from two directions: accessibility and availability.
One reason payday lenders were successful is that they were densely present in their target markets. While their clients fall across a range of income brackets, the highest concentration is in low income areas, where many are unbanked.
“We definitely have a proliferation of payday lenders, and bank branches are sparse,” said District 2 Councilwoman Ivy Taylor.
SFCU realized that to be effective, they needed to be in the neighborhood. They needed to find places along people’s pathways. Convenience is an issue for those who take public transit or walk to and from work with their paycheck in their hands.
So SFCU found a home in the middle of their target market: Ella Austin Community Center, affectionately known around the neighborhood simply as “Ella Austin” or “Ella.”
SFCU seized the moment to set up shop on the campus, giving them access to senior citizens and families who use the services offered at Ella Austin. They also have access to the employees of Ella Austin and the resident businesses. Employed people are statistically just as likely to use payday lenders as those without steady income.
SFCU goes a step further even, as they have the technology to bring banking directly to the homes of those who have trouble accessing in person or online. They are also working on other partnerships with local businesses and institutions to bring virtual or mini-branches to their facilities.
Ella Austin is easily walkable for neighborhood residents, and the branch has a slower, more relational atmosphere.
“We want to dedicate this branch to sitting down and talking with people,” said John Garcia, head of Business Development and Marketing at SFCU.
From their post at Ella Austin, SFCU is poised to offer not only accessible financial services, but also financial education. SFCU is a designated Community Development Financial Institution, one of only two in San Antonio. They keep their footprint small and nimble, with a focus on increasing financial stability for their members.
“We welcome Select Federal Credit Union because they have the flexibility to do more outreach than a traditional bank,” said Taylor.
The basic idea here is simple and well-conceived. Any business wants to be where the potential customers are, and Lord knows there’s plenty of room to compete with payday lenders on price and service. Those are the pillars behind the concepts of allowing post offices and WalMart to act as banks – they exist everywhere, including a lot of places where there are no traditional banks, and they can provide standard services like checking, savings, and low-dollar loans at very reasonable costs. Getting credit unions into the game is even better, as they wouldn’t need to seek regulatory approval to take on this business and they’ve generally been a force for good overall. I will be very interested to see how this plays out – there are no guarantees, of course, but this is a great idea that has real hope of succeeding. I hope their peers in other cities are watching how this goes, too.