"I am extremely grateful to the institutions that have responded to our requests and have agreed to develop financial products to help eligible state employees cope with these potentially difficult circumstances," the governor said at a Harrisburg press conference.
The CUs include Pennsylvania State Employees CU, AmeriChoice FCU, Members 1st FCU, and Oil Country FCU. Others identified by the Pennsylvania Credit Union Association as planning to offer loans include Altoona VA Hospital FCU, Belco Community CU, Grove City Area FCU, NE PA Community FCU and Your Choice FCU.
In his remarks, the governor noted, "Each of these institutions has its own criteria for eligibility and participation, programs and interest rates in establishing low- and no-interest loans and lines of credit."
He was joined by Secretary of Banking Edward Kaplan, who, in particular, praised PSECU and President/CEO Greg Smith for "leading the way to remedy these problems and stepping up to take social responsibility."
Since PSECU began offering 0% loans in May, volume has jumped 20% on the product, which is offered to those state employees who stay on the job but don't receive a paycheck.
Commonwealth officials estimate that as a result of the crisis, which hinges upon lawmaker approval of next year's budget, 69,000 state employees will be missing paychecks beginning July 17.
Ill. CU Offers Members Budget Crisis
With so many states facing fiscal crises this summer, the $575 million Credit Union 1 in Rantoul, Ill. has a simple lesson for its peers: Be cautious about wide-open, new-member policies to help cash-strapped state employees.
Under procedures it revised this year, the Illinois CU-which includes a large membership base of state employees-said it "no longer wastes a lot of staff time with inactive accounts."
"Two years ago when the state had a similar budget impasse, we were inundated with 1,000 applications but 20% were never activated," explained Paul Simons, president/CEO.
Under new rules on special low-rate loan offers, nonmember applications are being turned away, Simons said, noting also that employees must have direct deposit, payroll and a minimum 600 credit score.
Credit Union 1 is also imposing a $2.5 million cap on the loans, Simons said. "We simply made our whole program wide open last time around and we've learned our lesson."
Some employees "are disappointed to learn that this time around they can't simply get the loan by applying," Simons said. "We insist they already are members."
CUs Accept California-Issued IOUs
At least 60 California credit unions are accepting the state's IOUs, after the Golden State began issuing them July 2 when legislators failed to settle the state's budget by June 30.
Henry Kertman, vice president of public affairs at the California Credit Union League, said the state threatens to issue IOUs almost every year, and credit unions that serve state employees, like the Sacramento-based The Golden 1 Credit Union, make preparations to accept them.
However, this year the budget issues are more severe, Kertman said, and he hasn't seen any positive signs that lawmakers will reach a resolution soon.
The state is issuing IOUs for all expenses, including employee paychecks. Creditors must hold on to them until they mature on Oct. 2 or find a financial institution that will cash them. The state notes pay 3.75% APY on maturity.
The move could potentially grow credit union market share as Bank of America, Wells Fargo-each having a strong California presence-and other big banks told The Wall Street Journal they will stop accepting the IOUs July 10.
"We realize that many of our members do not have the luxury of waiting months to access their money. That's why we are accepting the warrants," said Ricki McManuis, senior vice president of corporate communications at the $900 million Altura Credit Union. "People need to be able to cash those warrants because they can't write IOUs to pay their own bills."
Altura will hold the warrants and redeem them when they mature, she said.
Kertman said the league has posted a list of credit unions accepting the warrants on its Web site (www.ccul.org), and is adding a red bullet point on its home page to highlight the link for consumers. Kertman said there are probably more than 60 credit unions accepting the notes, and encouraged all that are to contact the league to be included on the list.
"I'd like to think any opportunity credit unions can demonstrate more commitment to consumers than banks is an opportunity to grow market share," Kertman said. "We're not looking at this as a prime opportunity to steal market share, but rather an opportunity to serve members and make the general public more aware of credit unions."