Think your membership doesn't use payday lending services? You might be surprised.
One credit union was approached by their state sponsor for help when a survey
found that 95 percent of the state employees who answered a survey had taken
out a payday loan in the last year. Over 40 percent used a payday lender because
they had been turned down by their bank or credit union already.
What about neighborhood check-cashing services? Another credit union discovered
just how many of its potential members were utilizing check-cashing services
when branch tellers brought to management's attention the number of check-cashing
companies that were showing up in their lobbies each week.
Payday lending is a $25 billion-a-year industry in the United States and it
is estimated that check-cashing facilities cash $55 billion in checks annually.
Even retail giant Walmart recognized the business opportunity by launching check-cashing
services in 44 states this spring.
Many credit unions are now finding that they can:
1. Provide these services with much better rates to their existing members in
2. Attract new members and sponsor companies who also need these services; and
3. Improve the CU's bottom line through increased interest and non-interest
By designing programs that can compete with the rates and fees charged by neighborhood
check cashers and payday lending outlets, these credit unions are fulfilling
a social mission while building a viable business model.
One example is State Employees Credit Union in North Carolina. SECU has been
offering a salary advance program since January 2001. Structured as an open
line of credit of up to $500, members only need to go through the initial qualification
process once, then can request a new LOC when needed either through the branch
or over the phone. The credit union conducts an annual credit check after the
In contrast to traditional payday lenders, SECU instituted a new savings account
feature in March of 2003, demonstrating their desire to assist these members
over the long-term. If a member requests the maximum LOC, the credit union withholds
5 percent of the loan and deposits it in a restricted savings account. Access
to the savings account must be approved by a loan officer and if the member
wants to withdraw the funds, a six month suspension from the loan program is
The salary advance program has grown to almost 40,000 members with an active
LOC illustrating the need among their existing membership for such a program.
In addition, when comparing interest earned on the, interest earned is exceeding
loan losses-a business model that benefits the credit union.
18th at 2 PM Eastern, five credit unions will discuss the different approaches
they are taking to developing business models around the needs of these members.
Tulsa Federal ECU and Teachers CU (IN) will discuss their check-cashing business
models, including program structure and implementation on the front lines; First
Tech will highlight its recent foray into salary advance loans; Corporate America
Family CU will illustrate their approach to developing sponsor company growth
by promoting two products, a competitor to payday lending and a Fresh Start
checking-account; and Washington State Employees CU will talk about its community
partnerships and the public relations successes they have experienced as a result.