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

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

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

Financial Education Basic financial education Cost of money Financial planning Alternatives

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

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

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

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

Encouraging Thrift and Improving Financial Literacy Promote savings Facilitate financial literacy

North Side Community FCU Payday Alternative Loan – PAL u Eligibility: more flexible membership tenure, no credit check u Terms: 16.5 percent APR, $25 application fee, 6 month-term u Financial Counseling and Savings: not required, but encouraged.

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

North Side Community FCU Source: Fannie Mae Foundation Over 6205% % % Under 50027% No score13% Average score531 Bankruptcy within the past three years16% Average number of collection accounts4 Pal Borrowers

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

Corporate American Family CU Quick Cash Line of Credit Up to $1,500 APR 29.9% Criteria u $100 in Share Account u $75 Monthly Payroll Deduction u $25 Application Fee u No Credit Check

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%

Corporate American Family CU Quick Cash Line of Credit Program Changes Credit score less than 450 : $500 line limit Credit scores : $1,000 line limit Six month review to increase limit

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.

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

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