Lower Cost Fringe Services Court the Underbanked

An increasing number of credit unions are launching “fringe” financial services programs. These programs aid the often exploited underbanked segment and are offered to both members and nonmembers.


Check cashing services, along with payday loans, are among the fringe financial services that credit unions are increasingly adopting as a way to grow fee income and save the underbanked from high fees and interest rates. Payday lenders typically charge annual percentage rates of 300 percent or higher.

Between 11 million and 13 million unbanked Americans – and as many as 30 million Americans overall – use check cashing services. According to the Filene Research Institute, high-fee check cashing outlets process 180 million checks worth $55 million annually and typically generate profit margins of 12-30 percent.

Virtually nonexistent a decade ago, the payday loan industry has grown in recent years, today totaling 22,000 outlets. At year-end 2003, over 19 credit unions or related organizations offered check-cashing services in seven states.

Portland Teachers Credit Union the Latest to Launch a Payday Lending Program
$1.9 billion Portland Teachers Credit Union started its Payday Advantage Loan Program in early September. The credit union assesses significantly lower interest rates than traditional payday lenders – 12 percent for members with automatic payment and 14 percent for members without automatic payment. Members can borrow up to 20 percent of their paycheck for a maximum loan amount of $600 and must repay the loan within five days of the receipt of their next paycheck, according to the program.

The launch follows the introduction of the $alary Advance Program, implemented by First Tech Credit Union of Oregon. A state regulator initially pinpointed the need for such programs.

Florida Central CU Extends Services to Nonmembers
Florida Central Credit Union with $155 million in assets decided to offer fringe services to both members and nonmembers. The credit union extended check cashing, payday and car title lending, money order and money wiring services through the creation of a check-cashing facility in East Tampa in 2003.

“Primarily it will be a place where we make payday and car title loans at a much lower rate than [members and nonmembers] get elsewhere,” said Ed Gallagly, president and CEO at Florida Central.

To learn how credit unions are creating programs to meet the needs of the underserved and unbanked read the Callahan Market Update on Credit Union Services for the Underbanked.




Sept. 27, 2004