FRANKLIN PARK, Ill.-The ceiling at Leyden Credit Union looks as if it might be ready for a high school dance, but instead of tin foil stars hanging on strings, there are credit cards.
The $60-million CU has had an ongoing credit card consolidation promotion since August 2009 when, inspired by the federal government's "Cash For Clunkers" program to spur auto sales, it used the same concept to help members get out from under debt. David Lukas, Leyden Credit Union's CEO, said members were told to bring their biggest "clunker" of a bank credit card to determine if the credit union could help.
Who's The Clunkiest Of Them All?
"We left it up to the member to decide what made it their 'clunkiest' card, whether it was the one they owed the most on or had the highest interest rate," he explained. "The point was, which was the one the member wanted us to pay off? As long as there was one card it didn't matter to us."
If Leyden determined the credit risk was acceptable, the CU paid off the member's credit card and then set up a 36-month, 9% loan. The rate matches the credit union's VISA Gold card. Lukas said there is no pre-set limit to the amount that can be borrowed to pay off a single credit card, "it is just a matter of if the member is able to repay the loan."
"We had a member who owed more than $29,000 on a card that had an interest rate of 29%. That member was never going to pay that one off. We refinanced her credit card debt at 9% for 36 months. The rate is reduced so much, she paid us less each month than she was paying to the credit card company, and she wasn't getting anywhere."
That member is featured on Leyden's Facebook page (www.Facebook.com/LeydenCU), which has video of her being interviewed about her experience in the Credit Card Clunker program. "It makes me feel good every time I see her talking about how it has changed her life for the better," said Lukas.
Making a Difference
Leyden CU has booked 43 Clunker loans, prompting Lukas to note the scope is "not huge." "But that is 40 members we have helped considerably and we are really happy with the program. It feels like we are making a difference."
So far there have been no charge-offs on the Clunker loans. Lukas said there are a couple of delinquencies that are minor, but he does not think they will become a problem. "We have to monitor these things carefully, obviously."
"It is our intention to continue the program for a while, unless things go bad," he said. "We only allow members to pay off one card at a time, but a couple of members have paid off one loan and then applied on a second card. It is a good promotion that is helping people out. It is very uplifting because we feel we are doing the right thing."
