Fulfilling Social Missions and Attracting New Members with Payday Lending and Check Cashing Services

Think your membership doesn’t use payday lending services or neighborhood check-cashing services? You might surprised. Learn how credit unions are serving their existing membership and reaching out to their communties.

 
 

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 need;
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 income.

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 initial qualification.

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 applied.

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.

On August 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. Register

 

 

 

Aug. 16, 2004


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