MEDFORD, Wis.-People's Choice CU's "Payday Alternative Loan," or PAL, has granted 48 members loans since its inception early this year.
"The PAL program is a resounding success," said Matt Selke, president/CEO.
As of November 2008, the outstanding loan balance was $5,450, Selke noted. Income on the PAL program to date is $5,408. Charged-off loans to date are $1,050.
"Net income after charge-offs is $4,358, or return on outstanding loans of 79%," he said. People's Choice's PAL was introduced as a solution to combat payday lending in its market. PAL's goal is to combat the predatory practices of payday lending by offering up to $500 to pay off a current payday loan or to cover unexpected expenses. The fee is $9.25 per $100 borrowed with up to 30 days to repay. If needed, borrowers may rollover the loan up to three times.
"First rollover, members can pay a fee," Selke said. "Second rollover, the member pays principal down $50 plus fee. Third time, member must pay off. After three successful payoffs the member can rollover the PAL loan to the Next Step Loan with an interest rate of 32% and take up to six months to pay."
Of the 48 members who were approved for PAL loans in 2008, 10 have qualified for the Next Step Loan, Selke noted.
In one unique case, for a member who had a credit score of 596 on May 12, the credit union did a $300 PAL loan on July 15, a $400 PAL loan on July 25, and a $500 PAL loan on Aug. 8.
"Following successful repayment of her third PAL loan, the member qualified for a Next Step loan, which reports to the credit agencies," Selke said.
When the credit union ran a credit report on the member when she applied for the Next Step loan on Aug. 22, the member had a credit score of 671. Instead of a Next Step Loan at 32%, the member qualified for a loan at 7%, Selke said.
"The dramatic increase in score was likely due to a medical collection, which was paid during the PAL process," Selke said.
Peoples Choice CU's program is part of REAL Solutions, a statewide CU program to combat predatory financial practices offered in conjunction with the state league and the National Credit Union Foundation.
