CUs Seek To Beat Payday Lenders At Their Own Game: Veridian Members Have A New PAL

WATERLOO, IOWA - As legislative leaders contemplate laws that would cap the interest on payday lending, Veridian Credit Union here is taking action now.

The $1.2-billion asset CU launched a new product March 1 called the Payday Alternative Loan, or PAL, a less expensive alternative.

"Fees for payday lenders generally run between $15 and $30 per $100 borrowed," said Jean Trainor, CEO of Veridian. "Those large fees make it extremely difficult for someone to pay back a loan in a reasonable amount of time. The PAL is designed as an affordable alternative." In less than a month, 110 PAL loans have been processed, mostly through word of mouth, said Eric Kinman, manager of public relations at Veridian.

"We even had a situation where a member was in a payday loan facility and that company called our call center to get some account verification," Kinman explained. "The call center representative asked to speak to the member on the phone and convinced him to come to a branch and get the loan from us instead."

A Veridian PAL provides up to $1,000 with a repayment term of up to six months and includes a savings account in the same amount. For example, if an individual requests $500, the loan amount would be for $1,000. The additional $500 would be deposited into a savings account and held until the loan is paid in full. Both the repayment term and the savings component allow individuals to break the cycle of constantly renewing a loan.

"By including the savings component in the PAL, we are meeting the immediate needs of our borrowers while helping them develop healthy savings habits," Trainor said. "The savings account allows an individual to better plan for future expenses."

To qualify for the loan, individuals must provide proof of income, such as a pay stub or account statement. Paychecks are required to be direct deposited to a Veridian account and payments toward the loan must be made every payday. If payments are made via automatic transfer, the interest rate is lowered to 19% from 21% APR.

The Center of Responsible Lending reported in 2003 that 91% of all payday loan users have five or more payday loans per year and charging anywhere from 390% to 780%, forcing borrowers into a pattern of repeat loans.