State Employees Proving Payday Alternative Members Will Save
State Employees' Credit Union seems intent on disproving the axiom that consumers who use short-term loan products will not seek them out if they have a savings component.
The $21.4 billion credit union, headquartered in Raleigh, N. C., said over 150,000 members have used its decade-old Salary Advance Loan product and saved over $20 million in savings accounts after the loan began requiring borrowers to deposit 5% of their loan proceeds into a savings account in 2003. Over the years, some of those members have saved over $2,500 in their savings accounts, the CU said.
In recognition of the success of the loan program, SECU announced that it has both cut the interest rates on the short-term loans if the borrower has over $500 in savings and increased the mandatory savings component from 5% to 7%. This means that on a $500 loan, the savings deposit will move from $25 to $35 but the interest rates on the share-secured loans will drop from 12% to 5.5%.
“When the Credit Union began its SALO Program in 2001, it was designed as an alternative to high-cost payday lenders. What a wonderful alternative it has been for nearly 150,000 members, as the current program saves SALO participants an unbelievable $63 million each year in interest charges compared to typical payday lenders. We are pleased to be able to improve the program even further and add to the savings for many SALO users,” said Bobby Gardner, senior vice president of loan systems for SECU.
For many years, the payday loan industry and some credit unions that offer payday loan alternative products have asserted that members interested in the short-term loans that often carry very high interest rates will not take out the loans if they have a mandatory savings component.