Payday Lending Alternatives for New Members

Twenty years ago, payday lenders were practically non-existent. Today, there are more than 25,000 stores in America. That’s more than Burger King and McDonalds combined. Marketed as a tool for cash-strapped consumers to meet their basic financial needs, thousands of Americans are caught in the expensive trap of payday lending. Credit unions recognize they can help many of these borrowers by offering lower cost products. While all payday loan borrowers have bank accounts, credit unions also believe this is a way to bring in new members.

Credit unions wishing to offer products to new members must recognize their pricing strategies and delivery system may be different than for those who have been a member for a longer period of time. Experience has shown that losses on payday loan alternatives are for these members than other membership sectors. Credit unions offering products to new members may use Teletrack – the payday lenders credit bureau to determine the payday loan history of the member. Further, many of them are using underwriting software programs to determine credit risks and repayment probabilities.

It is also important to recognize a member’s good payment record. Members who have repaid their loans consistently should have the opportunity to move to lower cost options after a specified time. Many credit unions offer their members long-term installment loans to pay off multiple advances in payday loans stores. Further, many credit unions require a portion of loan proceeds be placed in a savings account to help members begin to accumulate wealth.

Documents

• Alternative Payday Lending Toolkit

• Alternative Payday Lending Worksheet/Spreadsheet

• Alternative Payday Lending Product Worksheet

• CFLR Report: Phantom Demand – Short-term due date generates need for repeat payday loans

• State-by-State Analysis of Payday Lending Laws
• Payday Lending Alternatives the CU Way – NCUF & CUNA Lending Council White Paper on Payday Lending
• Cooperative Credit:How Community Development Credit Unions are Meeting the Need for Affordable, Short-Term Credit – Woodstock Institute White Paper
• Payday Holiday: How Households Fare after Payday Credit Bans – Federal Reserve Bank of New York Paper
• A Fundamental Need: Small-Dollar, Short-Term Credit – CFSI Paper
• Financial Quicksand: Payday lending sinks borrowers in debt with $4.2 billion in predatory fees every year – Center for Responsible Lending Paper
• The Economics of Payday Lending – Filene Research Institute White Paper
• North Caroline Consumers After Payday Lending: Attitudes and Experiences with Credit Options – UNC Center for Community Capital Paper
• Federal Reserve Bank of NY Predatory Lending Paper
• Payday Lenders Utility Report
• Real Solutions Toolkit
• Breaking the Cycle of the Payday Loan Trap – 9/30/06 USA Today article on CUs pdf | weblink

Marketing Materials

• Marketing Plan – Kootenai FCU
• Insert – Kootenai FCU
• Poster – Kootenai FCU