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Generations Federal Credit Union

Credit Union :Generations Federal Credit Union
Assets :$405,600,000
Address :P.O. Box 830968 | San Antonio, TX 78283
Start Date :2007

Credit Union Partner :

The San Antonio Coalition for Family Economic Progress (Coalition) formed a partnership with generations FCU in 2007 to offer an alternative refund anticipation loan (ARAL) to VITA filers. The Coalition’s objectives were threefold:

  • To increase the number of families taking advantage of the Earned Income Tax Credits (EITC), the Child Tax Credits (CTC) and free tax services;
  • To decrease the number of families using expensive tax preparers and RALs;
  • To connect families to mainstream financial services and wealth producing strategies

The credit union responded with its RefundExpress Loan.

Membership Requirements :

Income restriction for free VITA tax services in 2009 (for 2008 tax year) was $42,000 To obtain the ARAL, tax filers must join the credit union with a deposit of $5 that can come from the IRS tax refund

VITA Site User Requirements :

  • Income restriction for free VITA tax services in 2009 (for 2008 tax year) was $42,000
  • To obtain the ARAL, tax filers must join the credit union with a deposit of $5 that can come from the IRS tax refund

Rates, Fees, and Terms :

  • The RefundExpress Loan has a 0% interest rate
  • Initially, a fee of $5 was charged to process the loan; the fee was dropped in 2008 because it created more processing work for the credit union
  • The loan term is generally one to two weeks and is paid when the tax refund is received
  • Generally, the credit union loans up to 100% of the anticipated tax refund, but in 2009 only 80% was financed because filers often did not know the amount of their 2008 stimulus payments which could affect the amount of the refund

Vendors/Systems Used :

No special technology is required on the part of generations FCU, however, the credit union provides extensive training to Coalition VITA volunteers. According to Bonnie Contreras, director of business development at generations, eight hours of training is invested for each site. The RefundExpress Loan is offered at 18 VITA sites in the San Antonio area. A VITA Volunteer Training Manual is used by the credit union to train volunteers on how to open new accounts and complete a RefundExpress Loan application.

A block of account numbers is issued per site. A copy of the member’s ID and SSN number are couriered to the credit union each day where all compliance requirements are met. The credit union has 24 hours to deny membership for any reason. At the end of 24 hours, the Coalition transmits the filers’ tax return. Loans are not funded until the return is accepted by IRS.

Target Market :

  • Individuals and families that made under $42,000 in 2008; in particular those who qualify for EITC and CTC refunds and want access to those refunds instantly
  • Those families or individuals that have limited experience using a mainstream financial institution

Marketing Strategy :

  • The Coalition markets its VITA services to low income city residents
  • Tax filers are offered the RefundExpress Loan and membership to the credit union as part of the filing process
  • Within the loan application, filers can check a box to indicate an interest in refinancing an auto loan or to be pre-approved for a new or used auto loan
  • The credit union’s call center follows up with calls to new members to ensure the loan process was satisfactory and to cross sell other credit union services

Program Results/Statistics :

In 2009:

  • 2,145 RefundExpress Loans were funded for $5.8 million, or an average loan of $2,704
  • 1,100 new members joined and took advantage of the loan; the remainder were existing members
  • Loan losses are less than 1%

Cross sales for 2008:

  • 47 car loans for $561,531
  • 253 checking accounts for $21,963
  • 10 investment/savings accounts for $9,710

Member Benefits :

  • RALs can carry APRs as high as 500%; generations FCU members saved approximately $370 in fees per average loan of $2,700
  • Many members also benefitted from refinancing their high interest rate car loans (>9%) with the credit union’s lower priced options that provided monthly savings from $50 up to $250

Additional Information :

The success of generations FCU’s RefundExpress Loan is the work that begins at the close of the tax season when the credit union’s call center follows up with calls to new members to cross sell other credit union services. “The business opportunity begins after 4/15,” says Contrera. “It’s the outbound calling process that makes the RefundExpress program successful and worthwhile to the credit union.”

In particular, the credit union tries to refinance high interest rate car loans and RAL borrowers are offered the option to refinance their car loans or be pre-approved for an auto loan at the time they complete the RefundExpress Loan application. RAL loans are not funded until the return is accepted by IRS and there is no notification of unpaid tax liens or garnishments. Loan recipients are offered a Credit Assistance Program in partnership with Consumer Credit Counseling Service that includes a free one hour credit/debt counseling meeting and a one year fee-paid credit repair program.

Refund loans are made for even dollar amounts rounded down to the nearest $100, in an effort to encourage savings. During 2009, when the credit union only funded 80% of expected refunds, it found that members used the 80% to cover planned expenditures and were more apt to save the remainder of the refund.

The credit union measures the success of its program not just through loan and cross sales volume, but from the fact that 80% of new members from the past three years are still doing business with generations FCU. In addition, loan losses have been less than 1% of loans funded.

Additional Information :

Generations Federal Credit Union has been offering an alternative to refund anticipation loans since 2007 that features a 0% interest rate. The credit union measures the success of its program not just through loan and cross sales volume, but from the fact that 80% of new members from the past three years are still doing business with the credit union.