NAPERVILLE, Ill. (10/22/10)--Seven Illinois credit unions statewide were recently recognized in a paper released by the Illinois Asset Building Group (IABG) that builds a business case for mainstream financial institutions to offer responsible, affordable, small-dollar loan products as alternatives to payday loan products. The products can help lower wealth families struggling to make ends meet, creating a “win-win” situation for both consumers and financial institutions, according to the IABG. Current financial market conditions--which include an emphasis on protecting consumers and providing innovative products for the underbanked--have created an opportunity for financial institutions to create, implement and market alternative small-dollar loan products, said the IABG. The Illinois credit unions and their products highlighted in the report include:
* Blackhawk Area CU (BACU), Savanna, which has offered the PayDay Loan product since April 2006. The maximum PayDay Loan product amount that a borrower can request is 50% of the most recent payroll deposit, with a minimum of $100, and a maximum of $1,000. There is a repayment term of 60 days by payroll deduction. BACU also offers a Credit Builder loan for members who may not qualify for any other type of loan and wish to establish a credit history or to improve their credit score. * CEFCU, Peoria, which has provided a Quick Advance Loan since 2007 to help its members with their need for short-term credit. Loan amounts range from $50 to a maximum of $500 and have an 18% annual percentage rate with no fees. The borrower is often someone who would benefit from financial skill building. CEFCU also offers free financial counseling to members. * Central Illinois CU, Champaign, which began the Payday Alternative Loan in July 2005 for its members to help them establish positive credit and build a savings habit while providing an alternative to high-cost credit. The portfolio balance started at $5,000, and by the end of 2009 increased to $50,000. * Generations CU, Rockford, which has provided the Qwik Cash Loan to its members since 2007. The maximum loan amount for the loan is $500 at a fixed annual percentage rate of 18% for a maximum loan term of six months. The $50 origination fee is deducted from the loan amount. The Qwik Cash Loan is open-ended to allow the borrower to take one out even if there’s already an existing Qwik Cash Loan. * Illinois Community CU, DeKalb, which offers its Payday Alternative Loan product as an unsecured, revolving line of credit up to $1,000 with a 22.9% annual percentage rate and a $10 loan advance fee. The credit union requests the borrower’s credit history, but does not require any certain score. The default rate on the product is about 12.5% and the return on investment is about 15.4%. The credit union also provides a free book on budgeting and savings for members having difficulty repaying their loan obligation. * North Side Community FCU, Chicago, which recognized the preponderance of predatory payday lenders in its community and the impact high interest debt had on its members, decided in 2002 to develop its Payday Alternative Loan (PAL) program. In the past eight years, North Side CFCU has made over 5,600 PALs, disbursed over $2.5 million in PAL loans, and has saved community residents over $5 million in fees and interest from traditional payday loans. Loans in the PAL program are $500, repaid during a six-month term, and have an annual percentage rate of 16.5%. There is also a $30 application fee and a $10 late fee. Also, $75 is frozen in the borrower’s account until the loan is paid off. * Southern Illinois Area CU, Swansea, which in March 2008, launched its Cash-Aid Loan program, designed to give credit union members an alternative to high-cost credit and to help them build good credit. While using the loan product, a member also is expected to learn about finances and savings. The credit union aims to balance between making the process quick and easy and keeping risk at a minimum. The maximum amount for the Cash-Aid Loan is $300 with a 15% fixed-interest rate and a $20 processing fee, paid when the loan application is submitted.
The IABG’s “Building the Business Case” paper outlines the benefits to financial institutions in responsibly meeting consumers’ needs for short-term, small dollar credit. The benefits include increasing revenue, attracting and retaining customers, cross-selling financial products, building a positive community image, and leveraging existing relationships and infrastructure. Using case studies, the paper documents financial institutions’ experiences with providing these products and recommends ways to increase their supply from mainstream financial institutions. The IAGB is a statewide coalition invested in building the stability and strength of Illinois communities through increased asset ownership and asset protection. The Sargent Shriver National Center on Poverty Law, Chicago Appleseed Fund for Justice and Heartland Alliance for Human Needs and Human Rights contributed to the report.