Consumer Federation of America
Second Annual Payday Loan Advocates’ Summit
Payday Lending Alternatives for
Credit Unions
Woodstock Institute
November 2005
Woodstock Institute
Engages in applied research, advocacy, and technical
assistance to help increase access to capital and credit in
lower-income and minority communities.
Payday Loan Reform
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Financial Literacy Education
Federal and State Regulations
Affordable Alternatives
Financial Education
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Basic financial education
Cost of money
Financial planning
Alternatives
Why CUs?
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Traditional emphasis on thrift and serving people of
modest means
Full service, affordable asset development products and
services
Financial education
Know their membership
Alternative products
Model Affordable Payday Loan
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Insuring program flexibility
Reducing credit risks
Encouraging thrift and improving financial literacy
Insuring Program Flexibility
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Credit union membership tenure
Loan amount
Interest rate and fees
Loan term
Convenience
Reducing Credit Risks
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Direct deposit or payroll deduction
Credit union membership tenure
Borrower documentation
Loan loss reserve
Credit reports
Encouraging Thrift and
Improving Financial Literacy
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Promote savings
Facilitate financial literacy
North Side Community FCU
Payday Alternative Loan – PAL
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Eligibility: more flexible membership tenure, no credit
check
Terms: 16.5 percent APR, $25 application fee, 6 month-term
Financial Counseling and Savings: not required, but
encouraged.
North Side Community FCU
PAL
Reasons for loan
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Utility bills
Auto expenses
Childcare
Rent
Medical bills
Pay off other payday loans
North Side Community FCU
Pal Borrowers
Over 620
560-620
500-560
Under 500
No score
Average score
Bankruptcy within the past three years
Average number of collection accounts
Source: Fannie Mae Foundation
5%
14%
40%
27%
13%
531
16%
4
North Side Community FCU
Pal Borrowers
Program Changes
Pal 2005
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Members with low credit scores must participate in financial
literacy class
Corporate American
Family CU
Quick Cash Line of Credit
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Up to $1,500
APR 29.9%
Criteria
 $100 in Share Account
 $75 Monthly Payroll Deduction
 $25 Application Fee
 No Credit Check
Corporate American
Family CU
Quick Cash Line of Credit
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Started April 2003
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One Year
$16.5 million Balance
12,600 advances of lines of credit
Delinquency 4.4%
Charge-offs 10.9%
Corporate American
Family CU
Quick Cash Line of Credit
Program Changes
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Credit score less than 450 : $500 line limit
Credit scores 451-550: $1,000 line limit
Six month review to increase limit
Other CU Products
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3.9 percent of Credit Unions offered Payday Loans in
2003*
Q-Cash : Washington State Employees CU
People-Helping-People Loan: The Orange County
Teachers FCU
Micro Loan: Carolina Trust FCU
Salary Advance Loan: First Tech CU
*Source: To Fee or Not to Fee?: Alternative Revenue Sources. CUNA, 2003.
PDL Product Evaluation
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Number of loans and rollovers, if applicable
Number of borrowers
Purpose of loans: will identify categories
Credit scores of borrowers
Credit union tenure of borrowers
Customer satisfaction, borrower experience with payday loans
Delinquencies
Defaults
Amount of loan loss reserve used
Cost per loan: loan originations, closing administration, closing loans,
loan servicing, collections, marketing, and etc.
Revenue/income per loan: fee and interest income, interest on loan loss
reserve
Resources
CUNA
 Payday Loans: The Hard Truth About Some Easy Money
 Alternatives to payday lending task force
 CFO Council White Paper: Back to Our Roots: The Case for Credit
Unions Offering Payday Loans and Check-Cashing Services
Consumer and Community Organizations
 Center for Responsible Lending - responsiblelending.org
 Consumer Federation of America – consumerfederation.org
 National Consumer Law Center – nclc.org
 National Federation of Community Development Credit Unions –
natfed.org
 Consumers Union – consumersunion.org
 Woodstock Institute – woodstockinst.org