Heritage Federal Credit Union ($450.95M; Newburgh, IN) is rolling out a short-term, small-dollar loan alterative just in time for Thanksgiving and the winter holidays. Its new express loan is intended to help borrowers steer clear of products with interest rates that easily climb into the triple, and even quadruple, digits. Express loans meet members’ quick cash needs — amounts can range from $500 to $1,000 — and help them avoid the payday lending cycle — members must repay loans within 12 months. Unfortunately, many members don’t yet realize they can get a low-dollar, affordable loan from the credit union.
“A lot of Gen Y will go to check cashing and quick loan places to get their first loan because they don’t know what to do,” says Steven Bugg, chief marketing officer of Heritage Federal Credit Union. “We want to educate our members. You don’t need to go to that quick loan shop, check lender, or payday lender — come to the credit union and we’ll get you the right product and service. You don’t need to be gouged on interest or fees.”
Funding The Holidays, Funding The Future
Heritage based the express loan on a similar program it learned about at a CEO strategy session, and then tailored the loan to fit its membership’s needs. And with the holidays approaching, along with the added financial stress they bring, late November seemed the perfect time to roll it out.
“There are some peak buying times when people traditionally need cash,” says Heritage’s chief lending officer, John Phipps. “We find the holidays is one of those times, so are the summer months. We want to build awareness of the express loan during those peak times so we can meet the demand for quick cash for short-term needs.”
Express loans are driven by relationships more so than credit reports. For example, in order to qualify, a borrower must be a member for six months. This will help ensure the loans will serve Heritage members. Despite the holiday roll out, these are not Black Friday door-busting deals; they are a reward for loyal membership.
“The target market is our members,” Phipps says. “We want to give back to those who have invested in us and are committed to us.”
The holiday timing does, however, help the credit union reinforce the standard repayment period of 12 months.
“We see a lot of people needing money for Christmas, and they want to finance a loan for two our three years,” Phipps says. “We don’t do that because next year, if they need Christmas money again, they’ll still be paying for this year’s Christmas. That’s not helpful for them.”
Driving Member Engagement
If a member opts to have their express loan payments auto-deducted from their qualified HFCU checking account, then Heritage offers a 1% reduction in the standard interest rate of 12.99%. Such a tactic promotes further engagement with the credit union.
“Having that payment automatically deducted from a credit union checking account is one of the reasons we can offer these sorts of programs and make them cost effective,” Bugg says.
An automatic deduction also means the member doesn’t have to worry about making, or missing, a timely monthly payment and potentially marring their credit record. It’s convenient for the member and encourages the member to use more credit union products, which of course benefits Heritage.
“It helps build member engagement, which leads to member loyalty, which leads to member satisfaction, which will then lead to the primary financial institution status,” Bugg says. “If they’re pulling money out to pay for the loan, money has to come in, so it’s probably coming in through direct deposit from their payroll. Then they’re going to get a debit card and start using that.”
The express loan is an immediate resource that offers members quick cash, but it offers a long-term benefit to the credit union. Namely, by meeting the need for extra cash around the holidays or offering a simple first loan for young members, Heritage establishes a relationship with the member. Then, when they are looking for an auto loan, credit card, or mortgage, they are already familiar with Heritage.
“From a pure financial standpoint, we’re not looking for an immediate revenue generator,” Phipps says. “It’s not going to be a loss leader, where we’re losing money from the portfolio, but that portfolio of express loans isn’t going to improve overall revenue much. It is geared toward helping those who need it and establishing a concrete relationship with the member for future needs.”