Payday Lending and Credit Unions

1
Payday Lending and Credit Unions

• Lois I Kitsch
• National Program Director
• National Credit Union Foundation

National Credit Union Foundation
2
Payday Loan Questions

• What is a payday loan?
• Very short term loans to consumers (mostly
  working families) using a check as collateral at
  very high rates of interest
• Why are these loans so controversial?
• 90 of revenues are based on fees from trapped
  borrowers
• A typical payday customer pays 793 in fees on a
  325 loan
• Consumer Federation of America

3
Size of Market
Payday Loan Questions?
How big is the payday loan industry? 22,000
payday lending stores Combined loans of 28
Billion Total fees paid 4 Billion
Average loan size325
4
A Credit Union Opportunity... Really?
5
Payday Loan Questions

• Why are payday loan alternatives a member value
  proposition?
• An estimated 10 to 20 of credit union members
  use payday loan products
• It is known that even credit union employees are
  using the product
• Our members are getting caught in the payday
  lending trap making it difficult to honor other
  obligations

6
Payday Loan Questions

• What motivates credit unions to get involved?
• Good business decision
• New members, new and often times profitable loans
• Good social decision
• Our members are using payday loans we need to
  help them and other consumers out of the payday
  loan trap
• Good advocacy decision

7
Adding a Payday Lending Product

• Why does our credit union want to offer this
  product?
• Revenue
• To bring in new members
• To help our existing members
• To help my community
• To help the credit union movement

8
Adding A Payday Lending Product

• What other issues should we think about?
• Selling the product to your volunteers
• Selling the product to your staff
• Selling the product to your members
• Selling the product to your community

9
STRETCH Pay

• Loan Size 250 or 500
• Term 30 Days
• 35 Annual Fee and 18 Interest
• Credit Union owned CUSO eliminates most risk
• Member Qualifications
• Credit Union Account
• 18 Years Old
• Caused no CU losses and not filing Bankruptcy

10
Energy Federal Credit Union

• Application fee and 15 Interest
• 30 Day Term
• No Credit History
• Can borrow up to the amount of their next deposit
• High usage with very low delinquency
• Designed for existing credit union members

11
Prospera Credit Union Good Money

• Goodwill Store
• 14 Day Term Designed for New Members
• 9.90 / Hundred
• Higher Risk
• Provides other transaction services
• Medical Referrels
• Offers Financial Counseling

12
The Credit Union Opportunity

• How to make the Credit Union Difference -
• Add appropriate products to your menu of services
• Determine if your members are caught in the short
  term loan cycle Members do want a low cost
  short term loan option - offer a product to help
  them move up a wealth path
• Price your product as low as possible to generate
  revenue
• Encourage your members to save and to become
  savvy borrowers
• Visit the FRI website for relevant publications