NEW YORK (12/1/14)--The Federation of Community Development Credit Unions brought the idea of the "Borrow and Save" small-dollar loan and saving program to the New York State Assembly subcommittee on banking in underserved communities.
Last week's hearing aimed to examine the practicality of establishing a pilot program in the state of New York.
"An unfortunate result of the tightening of credit is that minority communities and other economically vulnerable populations have had a much more difficult time obtaining credit and have been subjected to predatory financial practices," the subcommittee noted. "For many working individuals, bridging the gap between paychecks has been achieved by alternative lenders that are not subject to state regulation."
One way to meet the credit needs of this population is the program that amortizes a small-dollar loan with a required savings component.
"We see from the initial reports that Borrow and Save is successfully providing access to credit for low-income borrowers with damaged credit or no credit history," said Ann Solomon, strategic initiatives manager at the federation, in the testimony.
"For many of the participating credit unions, Borrow and Save has been a great way to provide access to credit to individuals who are not eligible for more traditional loans," she said, adding that the program can be a stepping stone to improve credit in order to ultimately access conventional loans at lower interest rates.
Since rolling out as a pilot program to 12 credit unions in May, Borrow and Save has made 1,000 loans totaling nearly $1.2 million, and borrowers have collectively saved $461,000.