'Surprised' At Who Is Using Payday Loans, LBPCU Offers Choice

Payday lenders prey not only on the poor and immigrant communities, but also the middle class, according to one credit union here that is attempting to do something about it.

Long Beach Postal Credit Union is a $61-million CU that serves 3,970 current and retired postal service employees, their families, and members of their households here in this port city just south of Los Angeles. Ken Peterson, LBPCU's manager of member services and lending, said when the credit union saw the checks to payday lenders-some members were writing multiple checks-it began researching the industry.

"We were surprised to find that it was not just the poor that were using payday lending," Peterson said. "Our members are postal workers, so they make a decent salary and many are homeowners, but sometimes they get in a bind between paychecks. Our research found that our membership really fit the niche of those who go to payday lenders."

In recent years, there has been much discussion in the credit union movement about payday lending and what the appropriate credit union response should be, he said. "Some people ask if it really serves the members. But they clearly are doing it elsewhere, and we felt we could offer them the same service for a lower fee or rate."

According to LBPCU, payday lenders typically charge $15 for every $100 borrowed-which adds up to a hefty annual percentage rate. To counter that, Long Beach Postal is offering a financing program under which members pay a $15 fee, then a fixed, 20% APR on the amount borrowed. Members can borrow $100 to $500, in $50 increments.

"Members must pay back the loan within 30 days, so the cost is about half of what they would pay at a payday lender," said Peterson.

The credit union's payday lending program began in July 2002, with the first loan being made just before the program was officially announced. Peterson said that member rushed back to his post office location and told his co-workers, which led to instant word-of-mouth advertising and several applications.

30 to 40 Loans Per Month

At first, Long Beach Postal Credit Union made approximately 15 to 20 payday loans per month. It now underwrites 30 to 40 per month.

The credit union advertises the program with posters, statement inserts and articles in its quarterly newsletter.

Peterson said the program recently experienced its first losses, as two members took out $500 loans and, within weeks, declared bankruptcy.

"All in all, it is doing really well," he said. "Members are happy with the lower fees. It is not really a moneymaker-we make a buck or two on each loan, which hopefully will offset our losses-but we didn't put it in to make money. We wanted to offer the service to our members."