Springfield News Sun
Credit unions offer payday loan options
Officials say the short-term, unsecured loans can help customers repair their credit histories.
By Elaine Morris Roberts Staff Writer
Sunday, March 02, 2008
SPRINGFIELD — Local credit unions have joined the short-term lending market, offering products to compete with the loans offered by payday lenders. "We saw a need in the community for an alternative to payday loans, so we decided to create a program to help," said Tiffany Looney, business development manager at International Harvester Credit Union. Payday loans are small-dollar, short-term, unsecured loans borrowers promise to repay out of their next paycheck or regular income payment, according to the Federal Deposit Insurance Corp. The Center for Responsible Lending in Durham, N.C., says those loans cost American families $4.2 billion annually. In addition to International, the Education Credit Union, Heartland Federal Credit Union and Wright-Patt Credit Union offer lines of credit that members can access up to 12 times per year as long as the previous advance is paid in full. Membership requirements have been relaxed, opening credit unions to anyone who lives, works, attends school or worships in Clark County. To join, an individual must be 18 years of age and have proof of employment. Most credit unions require only a $5 balance in a savings account and some have a membership time requirement before a line of credit will be considered. Fees range from $15 per advance plus no interest to a $35 sign-up fee and 18 percent interest, which equals $3.82 per advance. One important reason to offer lines of credit is to help customers build or repair their credit histories, Looney said. The payday lending industry has experienced rapid growth nationwide. Outlets for payday loans in Clark County alone have increased nearly four times over the past decade, growing from four in 1996 to approximately 15 by 2007. In defense of the payday practice, industry experts claim consumer organizations like CRL mix data from multiple states, muddying the statistical waters. Lisa Ferguson, director of
communications for Checksmart Financial, said Ohio law precludes a payday lender from giving a second loan to a customer before the first one has been repaid. "If people go to multiple lenders at the same time, that is their choice," she added. The typical payday fee is $15 to $20 per $100 advanced for a two-week period, resulting in an APR of nearly 400 percent. While Ferguson did not dispute the fees, she said the problem with that logic, is that "our product is a two-week loan and is not available for a one-year period, so that APR figure is misleading." Lisa Ferguson, director of communications, Checksmart Financial Ferguson said there is clearly a need for the loan product offered by Checksmart stores, because business continues to be strong. In response to customer needs, her company has made changes. Checksmart offers a no-fee extended payment option available at customer request and requires every customer be given a guide to responsible lending created by the Community Financial Services Association. "We also have our fees posted in every store on signs in 42-point type," she said. Checksmart, Ferguson said, belongs to the CFSA and follows its industry best practices which can be found at www.cfsa.net/industry_best_practices.html. The industry has come under fire over the past few years, being accused of preying on those least likely to be able to repay the loans on time. Ferguson offered industry data that states the majority of payday advance customers earn between $25,000 and $50,000 annually; 94 percent have a high school diploma or better; 42 percent own their own homes; and the majority are married and 64 percent have children in the household "The majority of our customers tell us this is the bridge they use between paychecks," she said, "and nearly 90 percent of them pay us back on time, so if our service is used responsibly, it does not create a debt trap." Jim Kitchen, president and chief executive officer, International Harvester Credit Union With full support of the Board of Directors, International Harvester began offering short-term loans via a line of credit to members a few months ago. "We felt it was good business and our civic duty to assist our customers with their short-term financial needs," he said. While these loans can be slightly riskier than conventional loans, International sets aside fees to
cover any potential losses. "This is a service for the community, not one for us to make a profit, Kitchen said. "With our line of credit, customers can make payments and build a credit history that they can use to qualify for traditional car or home loans." Kathy Allen, chief executive officer, the Education Credit Union Education Credit offers the Smartline line of credit for "members whose credit history precludes them from qualifying for a traditional loan," Allen said. The organization stresses financial education and a mentor comes with every new savings account. "The mentor checks in for the first four months, helping customers to set and meet savings goals," she said. To further educate its customers, Education Credit offers Second Chance checking, an account with limits to help people learn money management. The account has a $50 ATM withdraw limit and if a customer shows proof of a balanced account, the $7 monthly fee is refunded. The key to breaking the cycle is education, Allen said. "People want to be able to qualify for a traditional product. They don't want to be in the financial position they're in." Erika Whiting, marketing manager, Heartland Credit Union Heartland began offering a short-term loan product about six months ago, Whiting said, "partially on response to customer needs and partly in response to payday lending." Aptly named the Heartbeat line of credit, Heartland encourages recipients to put 5 percent of their advance in a savings account for at least six months. By gently pushing customers to save, Whiting said, Heartland's plan is to educate its borrowers to help stave off future money problems. Jeff Carpenter, vice president of cooperative development, Wright-Patt Credit Union Wright-Patt's StretchPay program was one of the first short-term loan products offered outside the payday lending industry, Carpenter said. The program has spawned other options for those without perfect credit in need of products such as credit cards and savings accounts. TrueSavers was set up as an enticement to save, offering 7 percent interest on the first $55 in an account. The
ShareSecure credit card is available for those who can not qualify for a traditional credit card. "We are trying to offer solution products for people who are already at the payday lender," he said. Contact this reporter at (937) 328-0371 or elroberts@coxohio.com. http://www.springfieldnewssun.com/search/content/oh/story/news/local/2008/03/01/sns030208lo ans.html