The XtraCash loan was launched in March 2007 by Mazuma, which also helped to form XtraCash LLC, a CUSO created to provide payday lending alternative services to credit unions. The loans typically range from $100 to $500 in increments of $25, depending on state laws. Mazuma charges a $15 fee for every $100. Payday loan users receive a $2 per $100 discount if they pay from a Mazuma checking or savings account and an additional $2 per $100 discount if they enroll in the credit union's educational program.
About 40 XtraCash loans are approved each month at Mazuma's IRS branch, said Andrea Phillips, an account executive. Government and IRS employees tend to use the loans to catch up on bills, she noted. Others have requested the funds for car repairs and to replace broken air conditioners. The range of XtraCash recipients is quite wide: young people, low-income members, "those living from paycheck to paycheck" and employees nearing retirement. They all tend to request the $500 maximum amount. Some are repeat users, while others use the funds to pay for things like daycare costs while school is out for the summer.
"We educate them about the pros and cons about the loan. We try to keep them from getting caught up in the cycle of using them over and over," Phillips said. "I'll ask them if they can get by with a lower amount if they come in for another loan."
The $409 million Mazuma initially implemented XtraCash at two of its 10 Kansas City-area branches in March 2007. The two branches are located in areas where payday loan usage is extremely high, said Rob Givens, president/CEO of Mazuma. In its first three months, the credit union opened 482 loans worth $166,300.
"We had so many members who had gotten themselves in trouble by using traditional payday lenders, and in order to serve this community as we've committed to do, we needed to find a way to help," Givens said.
As of May 2009, Mazuma had granted 9,592 loans, which has saved members $447,542 in fees they would have spent at other payday lenders, Givens said. Missouri outlets charge an average of $18 per $100, according to XtraCash. In full, the credit union has generated $39,006 in revenue, and saved $549,109 by using XtraCash instead of implementing the software and hiring staff to track and administer a payday lending alternative in-house.
Givens has been a vocal advocate of promoting a newer approach to payday lending. He has testified before legislators about other options, warning them about risky decisions consumers will resort to if payday lending is restricted. In response to an NCUA guidance letter released last week reminding credit unions to not create a structure where members rely on payday loans, XtraCash said its financial education programs are set up to move users away from them (CU Times, Aug. 12, 2009).
Givens peppers his arguments with models such as Ohio's cost sharing loan and a similar offering by Prospera Credit Union. Givens said he was recently invited to speak at a meeting with a committee that included church leaders who were against payday loans.
"I asked, 'How many people had used a payday loan?' No one said a word," he recalled. "You have people north of 20 million who use the loans. If you squash them, what do they do? They go online to find offshore lenders that are not regulated."
The committee eventually disbanded and bills in the Missouri legislature designed to scale back payday lending practices continue to fall by the wayside, Givens said.
"The payday lending association has best practices that make the loans more palatable. Internet players don't have that type of structure."
With that said, Givens said XtraCash is not a cash cow. At best, it's been marginally profitable, he acknowledged. There is a misconception that payday lenders are making "gobs and gobs of money." What's not really talked about is the amount of charged-off loans, Givens pointed out. If one goes that route, it may take a dozen more to recoup the loss. Mazuma's charge-off rate for XtraCash loans is "much better than the industry average."
"With any lending mechanism, there are going to be bad loans. You make a loan and then life happens. Our members come to us because they trust us. They understand that if they mess it up, they could cut it off for themselves and others. We don't wallow in this. We've been very successful in getting the repayments."
As part of Mazuma's short-term loan program, members who complete an online financial course are eligible to receive a discount on loan fees. Mazuma is using Educated Investor's MoneyCoach program for the online courses. So far, members have logged more than 800 hours of online training and have completed more than 400 online courses. In October 2008, XtraCash introduced an online payday loan application and processing system for users who want to apply via the Web.
Mazuma also encourages its members to work their way out of the payday lending cycle or not enter the cycle if it is not necessary. Givens said that a Mazuma member recently came to the credit union asking for an XtraCash loan. Phillips spoke to him about the terms, conditions and interest rate of the loan and suggested that the member open a signature loan instead of a short-term loan. The member was approved for the signature loan and was thankful that other options were presented to him.
"If we can help a member by way of a traditional lending product first, we'll always discuss that option with the member before opening an XtraCash loan," Givens said. "We work to free our members of the burden of short-term loans and get them into traditional products."