Filene Testing Debt-Reducing Card
The Filene Research Institute said it’s looking for credit unions to test a credit card that also serves as a debt consolidation and reduction tool.
The non-profit, New York City-based Neighborhood Trust Financial Partners submitted The Trust Card to Filene for inclusion in its affordable financial incubator test program.
The product is a both a credit and financial education vehicle. Members can consolidate up to $10,000 in existing debt onto the card, which carries a tiered interest rate of less than 15%. They then meet with a financial counselor who helps them establish a budget and set a payment rate. Members must also agree to refuse future high cost credit card offers, and submit to credit use monitoring as they repay the card balance.
The Trust Card begins with an initial credit line of $250, and then adds $250 more for each $1,000 in existing debt the cardholder repays. So, after a member repaid $10,000 in consolidated debt, he or she would be left with a credit card with a $2,750 credit line.
The $8.4 million Neighborhood Trust Federal Credit Union, a subsidiary of NTFP, piloted the card initially. NTFCU reported 45 members participated in the trial program and consolidated nearly $300,000 in debt with no defaults. Additionally, members who used The Trust Card paid off their debt in 3.8 years, compared to more than 18 years with multiple, higher rate cards.
Members also paid roughly $2,300 in interest on The Trust Card, compared to almost $9,400 they would have paid using multiple cards.
The credit union also reported the cards generated $2,500 in net income per card over the course of the trial, significantly higher than the initial $667 per card forecast based the standard industry 3.2% default rate. Zero defaults helped the program generate the higher per card net income, the NTFCU said.
NTFP said it already approached credit union core processors to confirm they can support The Trust Card, and said it will provide support to testing credit unions to introduce the program to members and non-members.
The organization said it has similar help in place to support underwriting the program, financial counseling and account management.
NFTP stressed the Trust Card Program doesn't replace existing card offerings, but instead broadens a credit union’s card portfolio to reach members that don’t qualify for other products, and helps those members improve their credit scores.