Think You Know Short-Term Borrowers? Think Again.

Acquaint yourself with the new wave of short-term credit users and prevent payday lenders from doing serious damage to your membership.


The history of payday lenders may not be a long one, but the industry’s brief boom has left financial scars on many current and potential credit union members. According to the National Credit Union Foundation, 15% to 20% of credit union members have used payday services, indicating a substantial market for short-term credit not just among general consumers, but among banked membership as well.

In some states, the era of payday lenders is rapidly closing. According to the Consumer Federation of America, high interest payday loans are illegal in 15 states and the District of Columbia, and the noose is ever tightening. In Arizona, for example, the industry’s legal exemption from a state interest rate cap of 36% ends this summer, something payday lenders advise may drive them out of business.

As increasing legal crackdowns push these predatory short-term lenders into the shadows, credit unions are stepping up with safer, low interest alternatives and providing responsible options to members victimized by payday lending practices.

To better reach their short-term-oriented membership, credit unions are trying harder to understand who short-term borrowers are and why they choose this option over traditional loans. In many cases, the answers are not what they expect.

Last year, The Social Sciences Research Network published data suggesting many borrowers have a viable amount of credit card liquidity when they take out payday loans. Other borrowers could potentially qualify for more standardized loans, yet still choose a high interest payday setup. In short, it’s not always members without financial options who rely on short-term loans.

Convenient come-and-go locations, minimal time requirements, and untraditional business hours are all reasons borrowers choose payday lenders over other financial institutions. And payday lenders know how to play to their strengths.

“We saw payday lenders popping up all over town” says Brett Noll, senior vice president and chief marketing officer at Langley Federal Credit Union ($1.7B, Newport News, VA).

To counteract the wave of payday lenders, Langley launched its own QuickCash program in 2004. The service provides a positive alternative to rampant payday loan usage, which “affected morale” and, in some cases, cost Air Force personnel their security clearance.

“Convenience is a big factor,” Noll says of payday loans. “We modeled our product after that, easy and fast.”

Langley initially expected military personnel, who statistically are approximately three times more likely to use payday lending than civilians, to be the predominant borrowers. However, only 10% to 20% of last year’s 1,500 QuickCash loans went to service men and women, indicating the demand stretches beyond any one group or community of members typically targeted for such services.

Old habits from years past help explain the frequent use of payday loans. According to Noll, when times were good, people didn’t care if they were charged $75 in fees, as long as they got their $500. Today, many borrowers still aren’t aware there are better short-term credit options.

Langley rolled out a QuickCash awareness campaign that included flyers and bus signage, and Noll says the program has helped members discover how short-term loan choices affect them in the long run. To date, the program has provided $30 million in loans and saved members nearly $3 million in fees.

When members are made fully aware of the cost of predatory payday loans, they begin looking for short-term credit programs that provide real, timely financial assistance without sinking them further into the mire of debt.

By rethinking the industry image of a “traditional” payday borrower, credit unions can meet these portions of their membership head on and provide solid alternatives to the payday pitfall.




April 19, 2010


  • Too general....needs many more numbers to be worthwhile. What rates are charged? How many rollovers? Average loan amount? Charge-Off ratio?

  • I thought this was going to provide some useful information...not just one credit union's experience.