Walk into a payday lender and you’ll be offered a loan that likely charges between 15 percent and 17 percent every two weeks.
Walk into the RedDough office in St. Louis County and you can apply for a loan that will charge just 10 percent over six months. For stressed, low-income borrowers — the kind of customers banks don’t seem to want — RedDough is a much cheaper alternative to payday loan shops.
RedDough is a creation of Prosperity Connection, a nonprofit financial education and loan operation. St. Louis Community Credit Union founded Prosperity and works closely with it.
The credit union and Prosperity are performing an experiment. They want to see if a lender can serve cash-strapped, low-income clients without charging sky-high interest rates of the sort once associated with characters who break legs for a living.
It’s a good time to be experimenting. The federal Consumer Financial Protection Bureau has proposed new rules that would restrict payday lenders and limit their clientele. Payday operators have defended their practices, saying they are the last hope for their customers when an emergency pops up.
Read more: St. Louis Post-Dispatch