One Ex-Soldier Knows Exactly Why Program Needed

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John Sargent can empathize with young folks who need a little cash to get by until payday. He used to be one.

As a newly married, 19-year-old Marine Lance Corporal just back from a year and a half in Vietnam, Sargent wanted to drive home to visit his parents, but a flat tire ruled that out. Back in those days, Sargent would have had to wait until his next payday to get the tire repaired. Sargent's tale of woe ended happily with his parents springing for a new set of tires, but many 1st Advantage members aren't as fortunate to have family nearby.

Military Members Are Targets

The $450-million 1st Advantage FCU started as the credit union for Fort Eustis, a nearby Army base, and is in close proximity to many military installations, including Newport News, Va. In an effort to keep young servicemen and women away from predatory lenders that charge as high as 400%, 1st Advantage has launched its own program called "Advantage Advance." Sargent said he recognizes the need for quick, small loans for someone most likely living paycheck to paycheck.

"These are the people who need help, these are the people who are getting ripped off," he said. "I just want to give them a good alternative."

The Advantage Advance product has a maximum loan amount of $500 at an APR of 17.95%. Five percent of the loan advance is deposited into a special savings account and the borrower is required to have a 1st Advantage checking account with direct deposit. The maximum loan term is 31 days and must be paid in full on the next payday using funds withdrawn from the checking account. Applicants must be currently employed and not under a bankruptcy filing. Sargent said he chose the 17.95% interest rate to simply undercut the competition, still make a small profit for the credit union, and not gouge young members with exorbitant late fees that keep the debt alive for months on end.

"We charge no fees. It's just the strict interest rates," he said.

Sargent said 1st Advantage will market the new program with brochures inside the credit union's branches and on its website. During its first week it underwrote three $500 loans, all of which originated online.

Idea Originated At State Employees

During 1st Advantage's research on payday lending, Sargent said he sought the advice of Phil Greer of State Employees CU in North Carolina, a credit union that has a robust payday lending alternative product that has seen considerable volume. Sargent gave State Employees CU the credit for its policy of placing 5% of the payday loan into an account for members, an idea 1st Advantage copied for its own program. The goal is to help the member create savings.

Sargent said a certified credit counselor is on staff at 1st Advantage and new payday loan members are encouraged to schedule a meeting. Sargent said one of his main goals is to break the cycle of poor financial education, which leads to poor financial decisions. "It's not going to be a big money maker for us. If I break even, I'll be happy," he said with a laugh.

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