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Payday Loans - Credit Union Association of Colorado

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					REAL Solutions for
     Low-Wealth
     Households

         Colorado Credit Unions

  Payday Lending & VITA Sites:
           The Credit Union Way
National Credit Union Foundation
                    Nancy Pierce
Today’s Discussion


  R.E.A.L Facts about the Payday Lending
  Industry!
  R.E.A.L. Actions! How you can help
  members out of the debt trap!
  R.E.A.L. Opportunities! How you can help
  members take advantage of tax savings!
  R.E.A.L. Stories! Credit unions that are
  making a difference!
Modest Income Households


 Study by MetLife: 87% of HHs with
 incomes <$30,000 live paycheck to
 paycheck; 65% of HHs with incomes
 between $30,000 & $49,999 in same boat.
 Critical need for quick short-term loan
 when cash emergency arises.
Size of Market – PDL Outlets




      Payday Lending
                     In 1990
     Fewer than 50 locations In United States
           Now over 26,000 Locations
      Projected locations to exceed 45,000
You Deserve A Break Today. . . .



           McDonalds
                  Versus
            Your Neighborhood
           Payday Lending Store
McDonalds Vs Payday Lending Stores


  State      McDonalds   Payday   Rank    PDL/
                         Stores          100,000


Colorado       181        577     15     13.41


Missouri       299       1,257     5     22.47


California    1,165      2,451     1      7.24
Starbucks vs Payday Lenders
Are our Members Using Payday Lenders?




      YES!!!
        10 to 20 Percent!
Are our Employees Using Payday Lenders?




         YES!!!
Payday Loan Borrower Profile & Facts


  100% have a steady income & an active
  checking account
  68% are under 45 years old; median age
  is 32
  82% have a HS diploma or better; 52%
  have some college or a degree
  42% own their homes
  62% female with children
  92% aware of the finance charge; 78%
  recalled it being disclosed as an APR
What is a Payday Loan?



    Using a post dated check as “Collateral”
    consumer can borrow a small amount of
    money
    Average loan is $300
    Usually 15 to 30 days
    Very high costs
    BUT very convenient
  Cost is NOT the primary Concern
          ACCESS is!!!
Payday Loans in Colorado


 Loan Terms:
   $500 max amt; 40 days max term;
   Max Rate & Fees: 20%: $0-$300 +
   7.5%: $301-$500
   APR for 14-day $100 loan: 520%
 Debt Limits:
   # Loans at one time: One
   Rollovers Permitted: One
 Avgs: $350 loan; 18 day term; 350% APR
PDL Lender Growth in Colorado
Growth in # Loans Made
Growth in $ Amount in Loans
Average Age is 36
Majority are female and single


                        54% are female




                        64% are single
Avg Time on Job Is 3.43 Years
Avg Income is $2,417 per month
Usage by Occupation
More Colorado PDL Statistics for 2007


  Avg PDL user borrowed 9.7 times in 12
  mos (from same lender)
  And paid $573 to borrow $354 for 5 ½ mos
  34% of loans made were for maximum
  amt of $500
  65% of loans were “refinance-type”
  17% of borrowers were indebted every
  day and accounted for 32% of loan volume
www.ago.state.co.us/UCCC/AnnualRpt/ddlasummary2007.pdf
Total Loan Volume by Usage Frequency
Payday Loan vs. Alternatives


  $100 PDL with $15 fee = 391% APR
  $100 bounced check with $48
  NS/Merchant fees = 1,251% APR
  $100 credit card balance with $26 late fee
  = 678%
  $100 utility bill with a $50 late/reconnect
  fee = 1,304% APR
Proactive vs. Reactive


 Short-term Loan        Courtesy
   Customer             Pay/Overdraft
   understands            Customer takes
   financial dilemma      reactive approach
   and proactively        APRs can be huge
   gets loan to solve     for one/two day
   cash flow needs        mishap
   Pricing is fully       Fees/costs not fully
   disclosed up front     disclosed prior to
   Opportunity for        use
   education with         Lack of education
   each transaction       prior to use of
                          product
States that Ban PDLs
Why Credit Unions Should Consider Short-term
Loans



1.   Can offer the product at a lower price
2.   Over 20% of PDL Users are CU
     members
3.   IT can be used to limit Renewals
4.   Can help members get out of cycle
5.   Attract younger new members
6.   Have history & relationship with member
7.   Financial Ed. can be included in model
Successful Payday Loan Models


 “StretchPay” CUOSI (Coop)
 “Good Money” Prospera CU in Wisconsin
 “Better Choice” Pennsylvania League
Stretch Pay


 $250 or $500 LOC
 Repayment term of 30 days
 18% APR; $35 or $70 annual fee (paid to
 CUOSI)
 Loan must be paid in full before new
 advance
 60 day membership requirement
 90% of losses covered by CUOSI
Measure the Difference


A Stretch Pay           While a traditional
  borrower who takes      payday loan user
  12 advances on a        will pay
  $250 line of credit   26 advances x $50
  will pay around         ($20/$100)


  $77 in fees.          $1,300 in fees.

   Through the internet? ($30/$100)
              $1,950
Sample Results - Ohio


  Stretch Pay
    30 Participating CUs
    21,700 Loans Disbursed
    $7.4 Million in Loans Disbursed
    $2.5 Million in Savings to Members
A Full Service Financial Center For Low –Wealth Families


    Powered by Prospera Credit Union
GoodMoney



                         Store Front in Goodwill
                         Center

                         Payday Loans
                          $9.90/$100
                          2 Week Terms

                           More than just a payday
                         loan - Financial education
                         programs

                         Opportunity to join the
 Ken Eiden               credit union
 Prospera Credit Union
 Appleton, Wisconsin
GoodMoney


 Avg. loan is $400; 2 week term
 After 3rd rollover, given certificate worth
 $50 for fin. counseling
 If member takes counseling, next loan is
 fee-free
 Losses run $5 per $100
Sample Results – Prospera CU


 Good Money
   5700 Advances Made
   $2 Million in loans disbursed
   Approval rate is 95%
   515 New Members
   $408,000 Savings to Members
“Better Choice” Pennsylvania Assoc.


  Mandatory Savings Deposit of 10% of loan
  amount
  Savings amount is added to loan balance
  Savings held until loan repaid
  Financial counseling provided
  PA Treasury Dept. deposit in Corp. offsets
  a portion of loan losses
Penn. Better Choice


 $500 closed end
 Up to 90 day repayment
 18% APR max (some CUs charging less
 for PRD)
 $25 app fee
 10% of loan amount put in restricted
 savings account until paid in full
 Financial Ed. Provided by CU
Better Choice vs. Payday Lending



    Better Choice –              Payday Lending –
   $500 for 90 Days              $500 for 90 Days
                                 Fees and Interest equal to
         18% APR
                              $15 per $100 borrowed every 14
    $25 Application Fee
                                           days

   Total cost after rebate:       Total cost for 90 days:
           $40.09                          $450

 Amount in Savings Account:     Amount in Savings Account:
           $52.25                          $0
R.E.A.L. People – E.I.T.C. & C.T.C.


  In 2006, EITC
  provided >$40 billion
  to low-income working
  families
  The credit lifts nearly
  5 million Americans
  above the poverty line
  each year
  Tax credits and
  benefits can
  effectively raise
  wages up $2.50/hour
Volunteer Income Tax Assistance


 Benefits for members:
   Help low income members take
   advantage of EITC and other credits
   (Average $2,000 to $3,000)
   Avoid the use of RALs (rates can vary
   from 36% to over 500%)
   Obtain free tax preparation (H&R Bloch
   = $165 average)
   ¼ eligible taxpayers fail to claim EITC
VITA Site Participation


  Offer site locations
  Provide equipment and software
  Recruit volunteers/preparers
  Become a certified preparer
Benefits to Credit Unions


  Potential new members
  Save members money
  Help members save money
  Partnerships with community
  organizations
  Partnerships with SEGs
  Aid local economy
  Doing good = Good for business
Benefits to Credit Union


  generations cu, San Antonio: 2nd year;
  2164 returns at city coalitions; city
  volunteers taught how to open CU accts;
  1400 new accounts, 225 checking
  accounts; 12 direct deposit accts; 10 IRAs
  and CDs.
Why Become a
REAL Solutions Partner Credit Union?


  A good percentage of our members are
  low wealth
  We have been able to demonstrate they
  make good business sense for the CU
  We want to make sure we are serving the
  whole community
  We want to help our community gain
  economic strength by helping households
  avoid costly mistakes
  We want to help move households up the
  wealth ladder
Why Become a
REAL Solutions Partner Credit Union?



  Our market includes a high percentage of
  Hispanics or other immigrants who are
  largely un-banked and low wealth
  This makes good political sense
  We want to expand and grow our
  membership
  Want to be good at serving a unique niche
  of those people who don’t know what
  questions to ask – let the sharks fight for
  the top 20% and A paper
Reasons for Participation in REAL Solutions




                        It’s About
                       Cooperation:
                       Be a Part of
                          the Brain
                            Trust
State Partnerships


1.   League MOU is           7.    Partnership Meetings
     signed                        conducted
2.   Credit unions invited   8.    Working groups
     to participate                formed
3.   Introductory            9.    Change begins
     Conference held         10.   Advocacy efforts
4.   CUs sign MOU                  begin
5.   “Discovery Sessions”    11.   Planning and hand
     conducted                     off
6.   Priorities chosen
NCUF Commitment


 Tested business models to participating
 credit unions
 On-site consultant for 8/9 months – 3 to 4
 days per month
 Access to all publications and resource
 center
 Media exposure for the league and credit
 unions
 Access to logo and other materials
CUAC, CUSP, & Foundation Commitment


 All travel costs for field coach
 League staff dedicated to the project and
 willing to put 20 hours per week towards
 its successful implementation
 Access to credit unions wishing to
 participate
 Some of the training materials and outside
 speakers
 Lunches and training space for partners
 meetings
Credit Union Commitment


 Must be willing delegate REAL Solutions
 program responsibilities to a senior
 employee
 Offer transaction products
 Serve new markets
 Attend all partners meetings and special
 functions
 May be called upon as part of national
 speakers bureau
Coming Soon


   National
   Learning
    Center
 For Business
 Models, Tools,
   CU Best
   Practices
R.E.A.L. Relationships!
Low Wealth Households = Good CU Members



 Lots of them!
 Concentrate their business with their credit
 union
 Have fewer good choices in the financial
 world
 Loyal
 Are borrowers and future borrowers
 Good risks and manageable risks
Contact Information


Nancy Pierce
REAL Solutions Field Coach - NCUF
Tipton Research Group

piercen@kcnet.com

816-532-4865

				
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