Low-income borrowers get options beyond payday loans

— -- As more and more Americans rely on costly, non-traditional ways to borrow money, companies are starting to step up to provide safer, more affordable financial tools.

Some 9 million families don't have a bank account. And many of those who do have an account still consider themselves financially frail. Almost half of all households say they wouldn't be able to come up with funds to deal with a financial shock of $2,000, says Annamaria Lusardi at George Washington University School of Business.

Now companies are targeting the ranks of unbanked and underbanked with new offerings, including:

•Micro Branch, a combination check casher and credit union, opened in California last year to serve unbanked families.

•BillFloat, an online bill payment company, was launched last year as a less costly option to payday loans.

•The AFL-CIO just introduced a prepaid debit card that is an alternative to a traditional checking account for unbanked union members and members of its affiliate Working America. The card also allows unbanked members to earn 5.1% on account balances.

Many working Americans who don't have bank accounts or enough savings to help them through rough times often have to rely on services such as payday loans that charge high interest rates. "Banks are not providing consumers with sufficient credit to help them live their lives," says Ryan Gilbert, CEO of BillFloat.

Two years ago, Elliot Gudiel, who lives in Whittier, Calif., and works for a pharmaceutical company, quickly needed about $1,000 after his mother passed away to pay her mortgage and keep her home.

Because no bank would give him a small loan, he had to go to a payday lender. "There should be more options," Gudiel says. "If you're not asking for a lot, you should be able to get a bank loan."

Many low-income families don't have a savings account because they can't afford bank fees. And many are living paycheck to paycheck, says Haydee Moreno, director of Micro Branch in East San Jose, Calif.

Recognizing that many unbanked Latino families rely only on check cashing, Self-Help Federal Credit Union launched Micro Branch as a hybrid check casher and credit union. In addition to offering less costly check cashing, it encourages members to start saving money in a credit union account, Moreno says.

Families don't always choose to be unbanked. Bank branches have closed in many low-income neighborhoods. And unbanked people often become robbery targets because they carry cash on payday, according to a study released in June by the Darden School of Business at the University of Virginia. When financial services help unbanked households, they also help the community by cutting crime rates and boosting property values, Darden says.