Payday Lending Alternatives for Credit Unions

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Payday Lending Alternatives for Credit Unions
Consumer Federation of America Second Annual
Payday Loan Advocates Summit
Woodstock Institute November 2005
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Woodstock Institute
Engages in applied research, advocacy, and
technical assistance to help increase access to
capital and credit in lower-income and minority
communities.
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Payday Loan Reform

• Financial Literacy Education
• Federal and State Regulations
• Affordable Alternatives

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Financial Education

• Basic financial education
• Cost of money
• Financial planning
• Alternatives

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Why CUs?

• Traditional emphasis on thrift and serving people
  of modest means
• Full service, affordable asset development
  products and services
• Financial education
• Know their membership
• Alternative products

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Model Affordable Payday Loan

• Insuring program flexibility
• Reducing credit risks
• Encouraging thrift and improving financial
  literacy

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Insuring Program Flexibility

• Credit union membership tenure
• Loan amount
• Interest rate and fees
• Loan term
• Convenience

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Reducing Credit Risks

• Direct deposit or payroll deduction
• Credit union membership tenure
• Borrower documentation
• Loan loss reserve
• Credit reports

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Encouraging Thrift and Improving Financial
Literacy

• Promote savings
• Facilitate financial literacy

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North Side Community FCU

• Payday Alternative Loan PAL
• Eligibility more flexible membership tenure, no
  credit check
• Terms 16.5 percent APR, 25 application fee, 6
  month-term
• Financial Counseling and Savings not required,
  but encouraged.

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North Side Community FCU

• PAL
• Reasons for loan
• Utility bills
• Auto expenses
• Childcare
• Rent
• Medical bills
• Pay off other payday loans

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North Side Community FCU
Pal Borrowers
Source Fannie Mae Foundation
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North Side Community FCU
Pal Borrowers Program Changes Pal 2005

• Members with low credit scores must participate
  in financial literacy class

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Corporate American Family CU

• Quick Cash Line of Credit
• Up to 1,500
• APR 29.9
• Criteria
• 100 in Share Account
• 75 Monthly Payroll Deduction
• 25 Application Fee
• No Credit Check

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Corporate American Family CU

• Quick Cash Line of Credit
• Started April 2003
• One Year
• 16.5 million Balance
• 12,600 advances of lines of credit
• Delinquency 4.4
• Charge-offs 10.9

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Corporate American Family CU

• Quick Cash Line of Credit
• Program Changes
• Credit score less than 450 500 line limit
• Credit scores 451-550 1,000 line limit
• Six month review to increase limit

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Other CU Products

• 3.9 percent of Credit Unions offered Payday Loans
  in 2003
• Q-Cash Washington State Employees CU
• People-Helping-People Loan The Orange County
  Teachers FCU
• Micro Loan Carolina Trust FCU
• Salary Advance Loan First Tech CU

Source To Fee or Not to Fee? Alternative
Revenue Sources. CUNA, 2003.
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PDL Product Evaluation

• Number of loans and rollovers, if applicable
• Number of borrowers
• Purpose of loans will identify categories
• Credit scores of borrowers
• Credit union tenure of borrowers
• Customer satisfaction, borrower experience with
  payday loans
• Delinquencies
• Defaults
• Amount of loan loss reserve used
• Cost per loan loan originations, closing
  administration, closing loans, loan servicing,
  collections, marketing, and etc.
• Revenue/income per loan fee and interest income,
  interest on loan loss reserve

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Resources

• CUNA
• Payday Loans The Hard Truth About Some Easy
  Money
• Alternatives to payday lending task force
• CFO Council White Paper Back to Our Roots The
  Case for Credit Unions Offering Payday Loans and
  Check-Cashing Services
• Consumer and Community Organizations
• Center for Responsible Lending -
  responsiblelending.org
• Consumer Federation of America
  consumerfederation.org
• National Consumer Law Center nclc.org
• National Federation of Community Development
  Credit Unions natfed.org
• Consumers Union consumersunion.org
• Woodstock Institute woodstockinst.org