Credit Unions Make Payday Loans Affordable
|National Credit Union Foundation Presents “Real Solutions to Members’ Payday Loan Needs” |
Credit unions are saving consumers millions of dollars in fees by offering payday loans at break-even prices, panelists revealed at the National Credit Union Foundation’s breakout session during the Credit Union National Association’s Governmental Affairs Conference (GAC).
| "How many people in the audience have credit union staff that use payday lenders?," asks session moderator and REAL Solutions Program Director Lois Kitsch.|
A standing-room-only crowd of 450 packed the Hilton Washington’s West International Ballroom to learn about “Real Solutions to Members’ Payday Loan Needs.” Three panelists described products to prevent credit union members from becoming victims of for-profit payday lenders.
StretchPay – Wright-Patt Credit Union, Fairborn, Ohio
“StretchPay line-of-credit loans save our members $1.5 million in payday loan fees per year,” reported Doug Fecher, president/CEO of Wright-Patt Credit Union in Fairborn, Ohio. That’s based on the typical borrower’s average of seven payday loans costing $350 per year.
In contrast, StretchPay charges an annual fee of just $35, plus interest payments of just $3 per month. “We purposely priced it not to make money,” Fecher explained. “We can’t save the world, but we can make it a lot cheaper.”
Members of at least 60 days can qualify for 30-day cash advances regardless of credit history, as long as they have verified income, are not in the process of filing for bankruptcy, and have no delinquent loans, charge-offs or negative share accounts. One key difference from traditional payday loans: “Credit unions, unlike payday lenders, report to credit bureaus – so we help members build credit and transition them to traditional sources of credit without fees."
Each StretchPay annual fee goes into a pool managed by a non-profit credit union service organization (CUSO) shared by 20 credit unions. Each credit union offers StretchPay with the same terms, while sharing the risk through the CUSO. The fees are used to cover 90% of the loan losses.
The CUSO is now expanding to other states. “We decided if we could get every credit union to offer StretchPay, we could compete with the payday lenders’ footprint,” Fecher concluded. “Everyone should be able to get an affordable payday loan from a credit union.”
QuickCash – Langley Federal Credit Union, Hampton, Va.
“Since July 2004, we’ve saved our members over $1.2 million in fees they would have otherwise incurred had they borrowed at payday lenders,” reported Brett Noll, senior VP/chief marketing officer for Langley Federal Credit Union in Hampton, Va.
Langley Federal offers QuickCash loans as an affordable alternative to payday lenders that target the area’s high concentration of military personnel. Noll cited research estimating that 17% of military personnel use payday loans, and payday lenders charged up to $8 billion in fees last year.
In contrast, QuickCash charges no fee. Its 18% APR on a seven-day term amounts to just $1.73 per week – compared with a typical payday lender’s charges of $75 per week.
QuickCash borrowers must be members for at least 180 days, and either have direct deposit or repaid a previous QuickCash loan.
“QuickCash losses are minimal, and QuickCash profits are minimal,” Noll acknowledged.
But one audience member challenged both Fecher and Noll on their payday loan alternatives’ lack of profitability. “Break-even means zero return on assets,” the audience member stated.
Nonplussed, Fecher and Noll asserted that credit unions, as not-for-profit institutions, do not need to make a positive return on assets from every product. “When you hear from members whose lives are changed as a result of break-even payday loans – and they promise to stay loyal members for life – that’s the best return you can have,” Noll concluded. Judging by their rousing round of applause, the vast majority of the audience agreed with this point.
Quick Money – Summit Credit Union, Madison, Wis.
“In order to live our mission of improving members’ financial power, we need to provide an alternative to payday lenders,” agreed Wendy Rohrer, assistant VP of lending for Summit Credit Union in Madison, Wis.
Summit’s Quick Money line of credit is open to members of at least one year who have direct deposit and no charge-offs or delinquencies over 10 days. Their annual fee is $25; monthly principal and interest payments total $75.
“The Quick Money loan has proved to be a more affordable payday loan alternative for our members,” Rohrer concluded.
Replicable Alternatives – REAL Solutions
Session moderator Lois Kitsch, the National Credit Union Foundation’s REAL Solutions national program director, urged all credit unions to consider offering affordable payday loan alternatives.
“An estimated 7% to 15% of credit union members use payday loan products,” Kitsch reminded. “So do some credit union employees. Providing alternatives to payday loans is a good business decision, a good social decision, and a good advocacy decision.”
Kitsch’s REAL Solutions team is working with state credit union leagues to help credit unions provide replicable payday loan alternatives for people with low wealth and modest means. REAL Solutions does not endorse any one particular product. It works with credit union leaders in each state to identify a range of products and services that will meet the needs of their members.
The National Credit Union Foundation is funding REAL Solutions as its signature program through earnings on the Community Investment Fund (CIF), which is available at all corporate credit unions.