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Payday Lending Alternatives for Credit Unions

Consumer Federation of America Second Annual Payday Loan Advocates’ Summit. Payday Lending Alternatives for Credit Unions. Woodstock Institute November 2005. Woodstock Institute.

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Payday Lending Alternatives for Credit Unions

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  1. Consumer Federation of America Second Annual Payday Loan Advocates’ Summit Payday Lending Alternatives for Credit Unions Woodstock Institute November 2005

  2. Woodstock Institute Engages in applied research, advocacy, and technical assistance to help increase access to capital and credit in lower-income and minority communities.

  3. Payday Loan Reform • Financial Literacy Education • Federal and State Regulations • Affordable Alternatives

  4. Financial Education • Basic financial education • Cost of money • Financial planning • Alternatives

  5. 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

  6. Model Affordable Payday Loan • Insuring program flexibility • Reducing credit risks • Encouraging thrift and improving financial literacy

  7. Insuring Program Flexibility • Credit union membership tenure • Loan amount • Interest rate and fees • Loan term • Convenience

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

  9. Encouraging Thrift and Improving Financial Literacy • Promote savings • Facilitate financial literacy

  10. 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.

  11. North Side Community FCU PAL Reasons for loan • Utility bills • Auto expenses • Childcare • Rent • Medical bills • Pay off other payday loans

  12. North Side Community FCU Pal Borrowers Source: Fannie Mae Foundation

  13. North Side Community FCU Pal Borrowers Program Changes Pal 2005 • Members with low credit scores must participate in financial literacy class

  14. 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

  15. 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%

  16. 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

  17. 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.

  18. 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

  19. 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

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