One Small CU Sees Future In STS Loans
PITTSBURGH — Citing what he sees as a broad reluctance of low-income designated CDFIs to embrace Small Dollar, Small Denomination lending (STS), Mark McCormick, CFO of ACBA FCU, and his team are undertaking a plan to reach out to a vast untapped membership market.
McCormick believes that many in credit unions-even those designated as low-income lenders-are shying away from STS lending because stringent NCUA regulations have succeeded in scaring CDFIs from lending money to certain borrowers, even those chartered to be serve that market.
McCormick suggested that NCUA has put more rules in place for STS lending than just about any other area of operations, including the requirement that to qualify for an STS loan the borrower must produce two pay stubs- often hard to come by for unemployed or low-income consumers.
Furthermore, he said, because of FOM issues, low-income consumers who might benefit from STS loans are often stuck with whatever loan they can get if their CU isn't lending. Whereas payday loan rates can be usurious, NCUA caps STS loan rates at 27%. ACBA uses a graduated rate scale.
The $4.6-million ACBA has 1,600 members — up from 700 members two years ago. Membership is open to anyone working in any level of government in Allegheny County. "We're talking about 60,000 people who have never heard of us, and we're going to try to get the word out to them that we're in business and we're in business to serve everybody, not just the elite," said McCormick.
He believes there are plenty of low-income borrowers who, if they knew they could get a loan on good terms even after others had turned them down, "they'd be over here and they'll join. My future is based on that. We're going to get hundreds, maybe thousands. We just have to publicize it."
He is proud of ACBA CU's status as a CDFI. "We are low-income designated and we are lending to low-income people-and we're happy as hell about it."