By Elizabeth Hobbs
Most people in our community probably don't realize that over 50,000 households in Lexington and surrounding counties are throwing away thousands of dollars each year by paying for services like check cashing and payday loans.
The banking industry calls them "alternative financial services," and they include non-bank money orders, non-bank check cashing services, payday loans, rent-to-own agreements and more.
The businesses that promote these services prey on low-income individuals and families and make large profits by charging high interest rates and fees. They profit off of people who do not have money saved to pay for unexpected expenses or do not have bank accounts.
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The Kentucky Coalition for Responsible Lending reports that Kentuckians were charged a nearly 400 percent interest rate on four million loans in 2008. In short, these businesses are taking the hard-earned money of many hardworking families, right here in Lexington and surrounding counties.
These services seem appealing because they have convenient hours and they give out cash on the spot. The Brookings Institution reports the number of payday lenders has more than doubled since 1999. Fayette County alone has 36 of these lenders who target people who do not trust banks, people who have simply never thought about opening a checking account, and those who are unable to open an account due to poor financial history.
The costs are surprising. One consumer story from the Kentucky Coalition reports that a couple borrowed $250. They were unable to pay it back, so they had to pay $54 in interest every two weeks. By the time they paid the $250 loan, they had paid a total of nearly $2,000 because of the high interest rate.
Furthermore, a person using these services may spend up to $40,000 in fees during their lifetime because they continue to cash checks or borrow money from payday lenders, creating a vicious and costly cycle. Individuals using traditional banking services spend less money on fees and have more opportunities to save and keep their hard-earned money.
United Way of the Bluegrass has worked with numerous community partners to organize a program that is reaching out to the un-banked and under-banked citizens of Central Kentucky. The program is called Bank On Bluegrass and seeks to help individuals and families who depend on alternative financial services to start their journey toward financial stability.
Participants can save money in fees and keep their money safe by using banks and credit unions instead of costly payday loan and check-cashing services. The program has a network of local banks that offer low-risk, low-cost checking accounts.
Another important aspect of Bank On Bluegrass is financial education.
Community partners such as the Community Action Council, Catholic Charities, and Apprisen provide free classes to Bank On participants that teach banking and financial basics. Topics include how to open a bank account, balance a checkbook and manage lines of credit. Individuals who have been denied accounts due to bad banking history may participate in the program and get a second chance at gaining financial stability.
Families and individuals in the Bluegrass should be aware of the predatory nature of alternative financial services. Everyone should have the opportunity to benefit from the financial security that a bank account can offer.
The community-wide partnership created by Bank On Bluegrass gives individuals and families across Central Kentucky a chance to distance themselves from these fringe financial services. Bank On Bluegrass is a valuable program that can pave the path to financial stability and healthy, lifelong financial habits.
Those interested in learning more about Bank On Bluegrass, opening a bank account or taking a financial education class simply need to call 2-1-1 or log onto www.BankOnBluegrass.org.