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Payday Lending and Credit Unions

Payday Lending and Credit Unions. Lois I Kitsch National Program Director National Credit Union Foundation. 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

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Payday Lending and Credit Unions

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  1. Payday Lending and Credit Unions Lois I Kitsch National Program Director 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 size$325

  4. A Credit Union Opportunity... Really?

  5. Payday Loan Questions • Why are payday loan alternatives a member value proposition? • An estimated 7 to 15% 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. 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

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