Making Payday Loans Honorable and Profitable For Your Credit Union

Payday loans tend to bring to mind Hollywood-crafted images of tall, beefy men in grey suits, slicked back hair and Italian accents.  In reality, loan sharks and your average store-front payday loan shops have given payday loans a bad rap.  But people are still applying for them—YOUR people (err…members)— and they are still being cheated out of their hard-earned money.

CREDIT UNION JUSTIFICATION
Members generally with lower credit scores seeking lower loan amounts tend to not be the most sought after business for most financial institutions. Many credit unions have justified not getting into the payday lending arena because, “It’s just not best for the member to borrow in these types of circumstances.”
But some credit unions are beginning to reconsider this due to the huge demand, paired with the desire to protect members from predatory lending.  Quoted in a “CU Times” article, Mark Allen, SVP of mortgage and investment at Washington State Employees Credit Union declared, “Credit union payday loan alternatives bring better products to market that benefit consumers by offering lower rates and more favorable terms.”

Q-CASH
When WESCU began investigating payday lending, “… [W]e began asking questions:  How many members were going outside the credit union to get a product we didn’t offer?”  Allen and his team discovered, “WSECU members had borrowed more than $6 million from storefront payday lenders, paying more than $900,000 in interest during the previous year.”
In response, WESCU created Q-Cash to satisfy a payday loan alternative. Q-Cash “has the convenience factor, but with better rates ($12 per $100 borrowed; 20 points below the market rate) and longer terms (60 days),” said Allen.

EVERYONE'S DOING IT
Check out North Carolina State Employees Credit Union. They created a short-term loan with a 12% interest rate and maximum limit of $500.00. "We wanted to find a way to get our members out of this trap," says Jim Blaine, SECU president in a recent USA today article. Members of North Carolina State Employees Credit Union are sure to appreciate this program since the state of North Carolina has recently been hit with over 75 tornado's and we all know insurance companies aren't quick to hand out cash.

HAPPY ENDINGS
Is there a happy ending to this story? Allen believes there is: “Both in our pricing and overall service model, WSECU has found what we believe is solid middle ground: offering a better short-term loan product for credit union members at fair rates and terms that benefit consumers and allows for a sustainable line of business.” SECU also has a happy ending for their members: “Each month, more than 40,000 people use the product, which has a maximum 31-day term. Overall, members have accumulated $10 million in savings accounts.” Happy endings don’t just happen in Hollywood.

1. Allen, Mark. “Payday Loans Are Credit Unions’ Business.” Editorial. Credit Union Times Hoboken. 22 Dec. 2010: 12. Print.
2. Krchhoff, Sue. “Breaking the cycle of payday loan trap.” http://www.usatoday.com/money/perfi/general/2006-09-19-credit-unions-usat_x.htm