Payday Lending Payday Lending and Credit Unionsand Credit Unions
Lois I KitschLois I KitschNational Program DirectorNational Program Director
National Credit Union FoundationNational Credit Union Foundation
Payday Loan Questions
What is a payday loan?
Very short term loans to consumers (mostly working families) using a check as collateral at very high rates of interest
Why are these loans so controversial?
90% of revenues are based on fees from trapped borrowers
A typical payday customer pays $793 in fees on a $325 loan
Consumer Federation of AmericaConsumer Federation of America
Size of Market
How big is the payday loan industry?22,000 payday lending stores
Combined loans of $28 Billion Total fees paid $4 Billion Average loan size$325
Payday Loan Questions?
A Credit Union Opportunity... Really?
Payday Loan Questions
Why are payday loan alternatives a member value proposition?
An estimated 7 to 15% of credit union members use payday loan products
It is known that even credit union employees are using the product
Our members are getting caught in the payday lending trap – making it difficult to honor other obligations
Payday Loan Questions
What motivates credit unions to get involved?
Good business decision – New members, new and often times profitable loans
Good social decision – Our members are using payday loans – we need to help them and other consumers out of the payday loan trap
Good advocacy decision –
Adding a Payday Lending Product
Why does our credit union want to offer this product?
Revenue
To bring in new members
To help our existing members
To help my community
To help the credit union movement
Adding A Payday Lending Product
What other issues should we think about?
Selling the product to your volunteers
Selling the product to your staff
Selling the product to your members
Selling the product to your community
The Credit Union Opportunity
How to make the Credit Union DifferenceHow to make the Credit Union Difference - Add appropriate products to your menu of servicesDetermine if your members are caught in the short term loan cycle – Members do want a low cost short term loan option - offer a product to help them move up a wealth pathPrice your product as low as possible to generate revenueEncourage your members to save and to become savvy borrowersVisit the FRI website for relevant publications