Summit CU's 'Quick Money' Takes Aim At Payday Loan Customers
Summit Credit Union recently launched a program to help members caught up in the spiral of payday lending debt.
Called Quick Money, it provides an immediate line of credit up to $1,500 for members to borrow against at 29.9% interest, significantly lower than the rate being charged by area predatory lenders, said Rebecca Gerothanas, VP of marketing at SCU.
"We were seeing an increasing amount of our members using payday loans,'' Gerothanas said. "We offer small loans and we have overdraft, but for whatever reasons, we knew they weren't looking to us as an alternative.''
Gerothanas said area payday lenders charge anywhere from 400% and 500% to a whopping 2,500% interest on small, short-term loans.
"What makes payday loans so hard is that the entire loan balance comes due in two weeks,'' she said. "If they didn't have the $300 when they borrowed it two weeks ago, they're not going to have it now.''
Summit's program, modeled after a similar one from Corporate America CU in Elgin, Ill., offers more reasonable terms to pay back the cash borrowed, she said. While the interest rate is higher than more traditional loans, it was calculated to offset estimated charge-offs of 20%.
"So far, we've given out 183 Quick Money loans,'' she said. "Of those, 38 people have completed financial counseling.''
Participants must be members in good standing and have some type of direct deposit, she said. There is an application fee of $25 and required monthly payments of $75 for the loan. The application fee and subsequent renewal fees of $25 annually can be waived for members who participate in Summit's free financial counseling services.
"We tried to find a way to encourage people to sit down and talk to us about the root causes of why they need the loan,'' she said, surmising that it's a good benefit for anyone wanting to establish or re-establish credit.
Recognizing The Signs
Quick Money is part of Summit's active approach to helping all members with their financial needs, Gerothanas said, explaining that employees are trained to recognize signs that a member is facing financial hardship.
"It's our goal to recognize the types of programs our members are looking for while taking the power away from the predators,'' Gerothanas said. "We sit down with them and figure out their financial habits that may be causing them to need a loan.''
Gerothanas said before the launch, employees went through two weeks of training that included program specifics and the importance of having this type of product available.
"Employees are picking up cues for people who need this,'' she said. "If a member calls to ask if a particular check has cleared and we see that there is no money in the account, we mention this product. When someone calls with a (financial) emergency, we mention this product.''
She said the traditional method was to refer the member to a lender.
"But, it's the immediacy that the member is looking for,'' she said. They may not have credit scores to qualify for loans or may not want to be bothered going through the application process.
She said Summit, a community-chartered CU with $630 million in assets, hopes to see at least 5,000 members take advantage of Quick Money and the associated free financial counseling during its first year.