CUSO to Offer Alternative to Payday Loans Nationally
Credit unions nationwide may soon have access to an alternative payday product through a nationwide CUSO that will allow them to pool fees and share loan losses.
The product and pooling arrangement are an outgrowth of a program started at the $1-billion Wright-Patt CU, Fairborn, Ohio, in 2003, said John Florian, VP/Governmental Affairs of the Ohio Credit Union System.
With the help of the $140-million Day-Air CU, Kettering, Ohio, the concept grew stronger, attracting attention of both the Ohio Credit Union System and the Filene Research Institute's REAL Solutions project (to serve the underserved).
"We see it as a model that could become an alternative to payday lending in Ohio and nationally," Florian said, adding that he expects the CUSO pilot to be ready for launch in the coming weeks.
Presently, 10 Buckeye State credit unions pool funds together to provide fee-based, 30-day loans in increments of $250 or $500. To qualify, participants have to be a credit union member in good standing, have some source of verifiable income and have a checking account (preferably at a CU), Florian said.
"The CUSO has not been formed, so the credit unions collect the annual fee and then forward those to their segregated account at WPCU," Florian said. "In the event that one of the loans defaults, they then request a refund of the entire loan balance."
Once the CUSO is formed, he said, the funds will be pooled and CUs can apply for reimbursement of up to 90% of their loan losses. If they collect on the loan, they must return the money to the pooled funds of the CUSO.
Florian said the Maryland/DC, Michigan and Wisconsin leagues have already expressed interest in the project.
"We think it has tremendous potential," Florian said.