ARLINGTON, Va. -- The Partnership Federal Credit Union's developed its "ZipLINE Credit Builder" to provide members an alternative to payday alternative loans (PALs).
More than 120 members of the $146 million CU took out PALS last year with interest rates that ranged from 13% to 18%.
"While this program had healthy adoption and performed well, the results revealed we were not meeting our ultimate goal of helping members break out of the payday loan cycle," said David Martinez, director of lending strategies and business technology at The Partnership. "Our analysis showed that nearly 50% of members with a PAL would open a second PAL after paying off the first. Additionally, the … repeated applications required a great deal of [the CU's] staff's time to process."
So in January Partnership introduced the ZipLINE Credit Builder -- an open-end line-of-credit designed to help members establish a borrowing relationship with the CU composed of three credit limit tiers ($500, $1000, and $2000) with escalating underwriting requirements.
Martinez said that in the 10 months since the ZipLINE rolled out, the CU has opened almost 260 accounts and maintained a credit limit utilization of about 85%.
The ZipLINE offers a revolving credit plan where members can advance what is needed as they needed it, Martinez explained. "It also provides a source of overdraft protection thereby helping members avoid overdraft fees.
The ZipLINE and its three credit limit tiers also provides an incentive for members to make on-time payments and improve their credit score so that they can graduate through the credit limit tiers, qualifying for higher limits, Martinez noted.
"Ultimately, our goal is to help our members improve their credit to the point where they may qualify for our risk-based priced loans and lines which offer lower rates and greater savings," he said. "From the staff perspective, the ZipLINE has significantly reduced our workload from an origination standpoint since we have eliminated the time-consuming labor associated with repeat closed-end PAL borrowers."
In addition, more than 60% of the credit union's ZipLINE members are ranked in the top two tiers of Partnership's member engagement program, which is called "VIP–Value in Partnership," a system that rewards members who use more of the credit union's products and serves.
"As members begin migrating through the ZipLINE tiers, improving their credit scores and building a payment history with the credit union, we'll engage them with opportunities for lower rate loans in hopes of lowering their payments, saving them interest, and helping them achieve their financial goals," Martinez noted.
ZipLINE differs from the CU's other loan products because it's a nonrisk-based priced loan where the underwriting is based on the members' relationship with Partnership, rather than conventional underwriting criteria such as debt-to-income ratio, etc.
"We also don't have a minimum credit score requirement for this product," Martinez said. "The member's credit score is used simply to determine what tier to place the member in, rather than to qualify the member for the product."
And the name is a play on words. "If you break apart the name, 'Zip' represents the speed and ease with which the member can qualify and access the funds," Martinez explained. "'Line' represents the line of credit nature of the product.
He noted that an actual "zip line" is a cable used to take people from one place to another. "We play on this because we want to take our member's credit from where it currently is to new heights," he added.
