The Credit Union Journal
The first day Detroit Municipal Credit Union offered a special loan to help with Christmas expenses, more than 300 members started lining up at its offices by 4 a.m.
By the end of the next day, Nov. 6, more than 1,000 Detroit-area families had signed up for the Holiday Quick Loans, which the $318 million-asset credit union is offering for the first time this year. It set aside $500,000 to fund the loans, which were available in amounts of $300 to $500.
"With the holidays coming up, we wanted to do something to help get our members through some difficult financial times," said Kathie Trembath, Detroit Municipal's chief executive officer. "Some of the people applying can't get credit elsewhere or are overextended."
Ms. Trembath said that she knew there was a definite need for the loans, and that the credit union was seeking to deter members from turning to payday lenders. However, she acknowledged that she had not expected demand to be so high.
"We didn't want members to pay exorbitant rates" to payday lenders, "but by Tuesday the following day, we gave out all the loan applications and had to start a wait list," she said.
The requirements for getting a Holiday Quick Loan are relatively easy. Members need to have held their current jobs for at least two years to qualify for $300 and five years to qualify for $500; each member must sign up for payroll deduction and must be in good standing with the credit union to qualify for the no-credit-check loans.
The loans carry an interest rate of 18%. Members have four months to repay a $300 loan and six months to repay a $500 loan.
Despite the inherent risk associated with a no-credit-check loan, Ms. Trembath is projecting that no more than 2% of the loans her credit union makes through the program will have to be written off.
"We hope we don't sustain high losses, because we hope we can do this every six months," she said. "It's a win-win for everybody, because members don't have to pay the high cost of payday loans, and we're able to increase the number of loans we make."
Not everyone taking out a Holiday Quick Loan plans to buy holiday gifts or a 20-pound turkey with the money. Ms. Trembath said she believed only 50% of the loans would be used for holiday gifts, with the other half being used to pay bills.
"The loan amounts aren't that large, but for some living paycheck to paycheck, it can make a great difference," she said.
