CUs Touted As Payday Loan Models In New Report

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ASI Federal Credit Union began offering its members payday loans because credit union officials were convinced members were being exploited by high costs and fees being charged at other area services. But the program does not have to be a money-loser and can even add to a credit union's net income, according to Audrey Cerise, CEO of the Harahan, La., credit union.

"You don't have to lose money," Cerise, told attendees of NCUA's PALs conference, of her credit union's growing payday loan program that now offers a variety of lower-cost products and assets building programs.

The program earned ASI FCU almost $1.8 million in fees and income in 2004 and cost a little more than $1 million to operate, for a net of $776,319.

That comes out to $105.08 per account, she said. ASI FCU offers four payday products: the Stretch and Credit plans, which offer small, short-term loans up to 15% APR; the Asset Builder Plan, which requires borrowers to make a deposit each time they borrow funds and has the credit union deposit the loan fees into the member's account for future use; and the Payday Lender Rebuilder Plan, which allows the member to repay high-cost loans at other payday lenders.

Cerise's remarks came as the more than 230 attendees of the 11th and final one of the PALs conferences organized by NCUA Board Member Deborah Matz were receiving copies of a new report that cites five credit unions as potential models for payday loan programs.

The report, conducted by former Treasury Department Assistant Secretary Sheila Bair on behalf of the Annie E. Casey Foundation, is called "Low-Cost Payday Loans: Opportunities and Obstacles," and touts recently developed programs at State Employees Credit Union, N.C.; Pentagon FCU, ASI FCU, Windward FCU and North Side Community FCU.

Matz, who indicated the Baltimore conference is probably her last one because her term on the NCUA Board expires next month, said she hopes the report encourages and guides more credit unions to offer payday loan services.

"I hope this report inspires more credit unions to offer affordable alternatives to the payday loans [that] are trapping millions of consumers in a vicious cycle of debt," she stated. "If more credit unions could build on the successful models [that] are presented so well in this report, millions more disadvantaged consumers would be able to provide better futures for their children."

The report, she said, shows that both small and large credit unions are capable of offering payday loan alternatives.

But it won't be easy, conference speakers agreed, as credit unions must compete with a burgeoning number of payday lenders that has exploded from just 50 nationwide in 1990 to more than 20,000 today.

Credit unions, the speakers agreed, must offer tangible programs, such as those providing small, short-term cash advances, along with the financial literacy education that has spread across the country the past few years.

Preliminary results of another study conducted by the Filene Institute show that financial literacy education is not sufficient in itself to deter consumers from high-cost payday lenders and check cashers.

But consumers and active credit union members need to be provided with readily accessible products and services as an alternative to payday lenders, according to preliminary results of The REAL Solutions Project conducted by 12 Maryland and Washington, D.C., credit unions.

"Education is not the only answer," said Michael Beall, president of the Maryland Credit Union League. "You need to be able to make a $250 loan in 10 minutes." Beall suggested credit union managers visit payday lenders and other high-cost competitors. "Know your competition," he urged.

Community credit unions, in particular, have a special role to play, suggested one panelist.

"When we converted to a community charter, we didn't know what we were in for," said Vin Cerasuolo, CEO of Century Heritage FCU, West Mifflin, Penn. "We thought growth would come naturally, but it didn't. We needed to get away from the trap that some other credit unions have fallen into going after the middle- to upper-income market where there is increasing competition for a shrinking piece of the pie. So we are turning to what we felt was our responsibility as a commnity charter: the lower-income, underserved people in our field of membership."

Financial literacy is something people need, payday loans are something they want-the trick, speakers agreed, is combining the two.

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