REAL Solutions for Low-Wealth Households

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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

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Todays 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!

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R.E.A.L. Solutions

• Meets 3 core credit union needs
• 1. Good Business Decision
• Grow loyal membership
• 2. Philosophy
• Improving the quality of life for members and
  other users
• 3. Political Goodwill

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Modest Income Households

• Study by MetLife 87 of HHs with incomes
  lt30,000 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.

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Size of Market PDL Outlets
Payday Lending
In 1990Fewer than 50 locations In United States
Now over 26,000 LocationsProjected locations to
exceed 45,000
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You Deserve A Break Today. . . .

• McDonalds
• Versus
• Your Neighborhood
• Payday Lending Store

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McDonalds Vs Payday Lending Stores
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Starbucks vs Payday Lenders
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Are our Members Using Payday Lenders?

• YES!!!

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

• YES!!!

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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

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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!!!
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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

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PDL Lender Growth in Colorado
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Growth in Loans Made
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Growth in Amount in Loans
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Average Age is 36
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Majority are female and single

• 54 are female
• 64 are single

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Avg Time on Job Is 3.43 Years
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Avg Income is 2,417 per month
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Usage by Occupation
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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

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Total Loan Volume by Usage Frequency
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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

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Proactive vs. Reactive

• Short-term Loan
• Customer understands financial dilemma and
  proactively gets loan to solve cash flow needs
• Pricing is fully disclosed up front
• Opportunity for education with each transaction

• Courtesy Pay/Overdraft
• Customer takes reactive approach
• APRs can be huge for one/two day mishap
• Fees/costs not fully disclosed prior to use
• Lack of education prior to use of product

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States that Ban PDLs
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Why Credit Unions Should Consider Short-term Loans

• Can offer the product at a lower price
• Over 20 of PDL Users are CU members
• IT can be used to limit Renewals
• Can help members get out of cycle
• Attract younger new members
• Have history relationship with member
• Financial Ed. can be included in model

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Successful Payday Loan Models

• StretchPay CUOSI (Coop)
• Good Money Prospera CU in Wisconsin
• Better Choice Pennsylvania League

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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

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Measure the Difference

• A Stretch Pay borrower who takes 12 advances on a
  250 line of credit will pay around
• 77 in fees.

• While a traditional payday loan user will pay
• 26 advances x 50 (20/100)
• 1,300 in fees.

Through the internet? (30/100) 1,950
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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

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A Full Service Financial Center For Low Wealth
Families
Powered by Prospera Credit Union
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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 credit union
Ken Eiden Prospera Credit Union Appleton,
Wisconsin
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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

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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

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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

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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

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Better Choice vs. Payday Lending
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R.E.A.L. People E.I.T.C. C.T.C.

• In 2006, EITC provided gt40 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

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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 (HR Bloch 165
  average)
• ¼ eligible taxpayers fail to claim EITC

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VITA Site Participation

• Offer site locations
• Provide equipment and software
• Recruit volunteers/preparers
• Become a certified preparer

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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

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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.

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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

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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 dont know what questions to ask
  let the sharks fight for the top 20 and A
  paper

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Reasons for Participation in REAL Solutions

• Its About Cooperation Be a Part of the Brain
  Trust

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State Partnerships

• League MOU is signed
• Credit unions invited to participate
• Introductory Conference held
• CUs sign MOU
• Discovery Sessions conducted
• Priorities chosen

• Partnership Meetings conducted
• Working groups formed
• Change begins
• Advocacy efforts begin
• Planning and hand off

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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

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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

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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

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Coming Soon
National Learning Center For Business Models,
Tools, CU Best Practices
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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

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Contact Information

• Nancy Pierce
• REAL Solutions Field Coach - NCUF
• Tipton Research Group
• piercen_at_kcnet.com
• 816-532-4865