We are lenders. When Edward Filene, an entrepreneur andbusinessman, first explored new approaches to traditional bankingearly in the 20th century, workers in Massachusetts were theimmediate beneficiaries. Over the years, credit unions have built adeserved reputation as responsible stewards of their members'money. A cornerstone of that commitment is responsible lending. AtFilene Research Institute we've studied loans, lending practicesand the financial health of Americans since our founding 27 yearsago.

Consider the mortgage crisis, the explosion of payday lendingand the parlous state of many households' financial health. Socialresponsibility and member financial capability have become crucialto credit union lending – as they should be.

In the U.S. and around the world, economic security isconsidered a pillar of household well-being. Yet today, more than50 million adults in the U.S. are underbanked, lacking access tobasic financial tools and resources that can help them save for thefuture, weather shocks and build assets. These challenges areespecially difficult for minority households. A 2014 FDIC surveyfound 54% of black and 46% of Hispanic households are un- orunderbanked, well above the national average of 28%.

Credit unions have an opportunity to fulfill the mission set outby our founders – to provide responsible access to needed capitaland build a pathway to a stronger financial future for the peoplewho need it most.

Twelve million U.S. households use payday loans each year tohelp cover cash flow shortages. Mainstream payday lenders chargeinterest rates as high as 677%, according to the Center forResponsible Lending, and include exorbitant fees. Yet according toPew Research, 65% of working class households use short-term loans.Once the cycle of payday loans begins, it can be difficult toescape. Those who use payday services take out eight payday loansper year, on average.

Beyond the ethical challenge of lending to underservedcommunities, credit unions face a competitive challenge in the riseof P2P lenders. Morgan Stanley estimates $37 billion will be issuedon P2P sites in 2016 in the U.S. alone, with the possibility of$122 billion by 2020. Alternative lending is here to stay. And togrow.

The market is so dynamic that Filene thinks we shouldn't sit onthe sidelines. Instead, credit unions could dive in as investors,partners, or – most ambitiously – by building a creditunion-centric lending platform. Read more in our report, “Peer-to-PeerLending and the Future of Cooperation.”

Ideally, potential borrowers would turn to a credit union.However, a recent Filene report, “Trending:Credit Unions 2025,” showed consumers would rather borrow fromfamily and friends or even sell their belongings instead ofapplying for a personal loan at a financial institution. Many havelikely been turned down for a traditional loan in the past.

Responsible alternative lending options do exist and are beingsuccessfully deployed by your colleagues across the country.

One example is QCash. In 2003, Washington State Employees CreditUnion's president/CEO noticed an alarming trend. Many of the creditunion's members were utilizing local storefront payday lenders fortheir short-term cash needs and paying the price. A six-monthinternal review showed fees in excess of $1 million. In true creditunion spirit, WSECU assembled a team with one goal: Provide WSECU'smembers with the best option for short-term cash. QCash was bornefrom that effort.

The small-dollar digital lending platform provides a fast andsimple way for members to get a loan approved and funds disbursedin less than 60 seconds. Loan eligibility is determined based onthe member's relationship with the credit union. In 2015 alone,WSECU funded $28 million in loans and saved its members more $4.1million. Now, credit unions can leverage this technology through aFilene pilot program in coordination with QCash.

Seeking new and innovative ways to serve members is not foreignto credit unions. Identifying and implementing approaches in a waythat is scalable and sustainable in the long term can presentchallenges, but many success stories exist.

Employee-sponsored small dollar loans are another example of apromising option that aligns well with existing credit unionproducts. In one pilot, a small dollar loan, typically less than$2,000, is offered to employees of companies that partnered with acredit union. Loan payments are auto-deducted from the employee'spaycheck. The average income of the borrowers was $36,500 with anaverage credit score of 560. Once the loan is repaid, employees maycontinue making deposits into savings accounts.

Borrow and Save programs, which tie small loans to mandatorysavings by the borrowers, showed promise in another recent pilot.Programs like this can help members break the cycle of payday loandebt. During the 16-month reporting period, 14 credit unions funded3,100 loans, representing $2.9 million in balances and generating$900,000 in member savings. The average loan per borrower was $944and the average savings was $290.

Sustainable alternative lending solutions are available. Morethan 100 years after the credit union movement was born, we have anopportunity, and even a responsibility to our communities toprovide solutions that solve our members' most pressing needs.

Erin Coleman is senior impact director for Filene ResearchInstitute. She can be reached at 727-742-3196or [email protected].