Horror stories of payday lending or check cashing are nothing new. Many "loans" can't be paid off in a couple of weeks and poor workers without any means of remaining current "roll over" their loans at astronomical APRs. Far from offering a convenient service, it keeps them in debt, often perpetually.
"They're not being helped; they're being buried," said Jim Drogue, Wisconsin Credit Union League vice president of operations.
Credit unions have long asserted that they are better positioned to service underserved markets with lower rates and a tradition of public service. But they have also often lacked the expertise or a product to do so. Seeking to resolve that dilemma, the Filene Research Institute joined forces last year with nearly 70 credit unions in three states and offered a financial solution.
The end-result is REAL Solutions, which stands for Relevant, Effective, Asset-Building and Loyalty-producing. It seeks to provide credit unions with guidance and methods to serve financially underserved segments at a time when research indicates the problem is only growing worse. The Center for Responsible Lending in Durham, N.C. for instance, reported that in the last 10 years, payday-lending stores have grown to 15,000 from 300 and now represent more than $25 billion in loan volume. Filene is working with the Wisconsin, Maryland and Ohio leagues to bring underserved segments into the mainstream of traditional financial practices.
Recently returned from another trip to war-torn Afghanistan, Filene Director of Field Projects Lois Kitsch said working with financially underserved members evokes the founding mission of credit unions. But first Kitsch had to convince CUs that providing financial services to the underserved is not only honorable, but also good business and the right thing to do.
"They're wary at first, because payday lending has such a bad reputation," she said.
Kitsch said REAL Solutions offers a "tool kit" with case studies, details of the regulations involved, business models, products, training and services. The $50 fee, Kitsch said, "barely covers costs" for Filene in developing the program. Filene members can download REAL Solutions for free as a PDF document.'
Positives For Lender, Borrower
What credit unions will find in the new offering, said Kitsch, is that credit unions can help change people's lives while enhancing their own financial positions. She referred to REAL Solutions as "very positive for all the right reasons."
Kitsch noted that the lower-income market targeted by payday lenders is enormous, but it's also full of competition, and she said credit unions are going to have to be careful to differentiate itself from unseemly lenders.
"We don't encourage credit unions to offer products that are not viable," she said. "We need to be very careful how we position it."
In Wisconsin, Drogue said 34 credit unions with 100 locations throughout the state are now using REAL Solutions. Drogue, along with WCUL President Brett Thompson worked for a year briefing CUs on the concept and creating a letter of understanding regarding the plan. Many credit unions were ready for the opportunity, including WESTconsin Credit Union, which has begun a program to offer used car loans to single mothers.
"A lot of credit unions in Wisconsin had already done some work serving the underserved," Drogue said. "It's going back to the roots of credit unions."
