Bad Credit History? PFCU Calls The D.R. For Help

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A credit union here is seeking to build up member loyalty through a new loan program in which no credit history is pulled.

"We don't check credit history, because members that come here for this type of loans are acknowledging that they have a credit problem," said Linda Reynolds, CEO of Pinellas Federal Credit Union.

The interest rate on the "D.R. (Debt Recovery)" program is 18%. The high interest rate covers all administrative costs and offsets higher risk, said Reynolds, who is projecting that Pinellas Federal's assets will expand to $67 million by the end of the year compared with the current $62 million.

The program, also known as "the doctor loan," has allowed some 60 people that have bad credit history to borrow up to $500 each, for as long as a year.

The program helps members to start showing a recent record of a good repayment on their history to put them on their way to rebuild capacity to borrow, Reynolds said.

"At this point it (the program) is not about profitability. We are hoping that these individuals will give us their business later when they can buy a vehicle or a home," she said. Loyalty will exist "because we have shown some faith in them," she said.

So far there isn't any delinquency on the program, she added.

"We realize that we are taking a high risk by not pulling a credit report. But they do have to show us that they have income and have had an account with us at least for a year," she said.

The program builds on the concept that there are members who may have gone through special circumstances like a divorce or an illness but who are lumped with others that are financially irresponsible. It also gives a second chance to those that made mistakes because of inexperience.

According to the Economic Outlook and Credit Union Finance booklet released by CUNA for the 2005 CEO Summit in Key West, the delinquency rate ratio for 2005 will be 0.7%, one basis point higher than last year but down from an average in the past five years of 0.76%. The ratio is projected to rise to an end-of-period, annualized rate of 0.8% in 2006 as GDP growth in the nation slows and interest rates rise.

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