LINCOLN, Neb.-The Nebraska Credit Union League has launched an alternative payday loan program together with six credit unions in Lincoln.
Plans call for expanding the program to the rest of the state in 2012.
The program-known as Credit Union Quick Cash-came about as a result of both consumer groups and legislators calling for an alternative to predatory payday lending. League CEO Scott Sullivan said that while some CUs in the state had their own payday loan alternatives, there was no statewide option.
As such, the initiative was modeled on a similar program from Columbus United FCU in Columbus, Neb. Consumers can get $500 loans at 18% APR on a 60-day term. The loans come with a $20 application fee, and all applicants must have been a credit union member for at least 30 days. Credit unions do not pull credit reports for the loans, but applicants must have direct deposit with the CU and verifiable proof of income.
The terms of the loan are the same at all CUs. The six participants are LincOne FCU, MembersOwn CU, Nebraska State Employees CU, Peoples Choice FCU, University of Nebraska FCU and Liberty First CU. The CUs have a combined total membership of 56,800.
"One of the issues in Nebraska is that you can only have $500 outstanding at one payday lender, and you're not supposed to be able to roll that over," said Sullivan. "But there are so many lenders in Nebraska that [consumers] go to one another to pay one off, but nobody really knows how many payday loans you have out at one time. So [State Sen. Amanda McGill] has introduced legislation to create a database to provide better tracking on those people using payday lending."
The program was set up to provide enough time for members to pay back the initial loan without having to use it to secure another.
Counseling Included
"One of the problems we saw was that typically payday lenders can't go out more than 34 days, and they're typically shorter than that," said Sullivan. "If you had an emergency-say you needed to repair your car-the repayment terms were so short to where a lot of people were getting caught up in that debt cycle; they didn't have it to fix their car, so they may not have it in 15 or 30 days."
The loans also include financial counseling, so that if CUs notice members continually taking out these loans, they can work with the member to help get them out of that cycle. Despite that, there is no rule preventing members from taking out a second loan once the first has been repaid.
"We think it's something that Nebraska consumers will be attracted to," said Sullivan. "We're trying to get people out of this cycle, not keep them in it."
Ken Bradshaw, CEO at the $145-million Liberty First CU, said LFCU had not generally offered payday loans in the past, but signed on for this project because of a need in the community. He was unsure how many loans the CU might actually generate, but expected it would not exceed 60 at any one time, or about $30,000.
Bradshaw added that while the CU might see a small uptick in membership because of this new offering, "to be quite honest, this isn't intended to make money. It's to provide the community with a service. ...If we can break even we'll consider the program successful for our purposes."
