<p>CU Times Midwest Correspondent DAYTON, Ohio – Two credit unions here are putting together a plan to compete head-on with the payday lenders. Day-Air Credit Union and Wright-Patt Credit Union have taken up work begun by a University of Dayton business professor to find an alternative to the high-interest lending operators. The work right now is trying to put together a business plan for a CUSO to operate a freestanding office that would make loans similar to payday loans and cash checks for members and others. This all started as a classroom project for students of Brother Victor Forlani, a Uof D business professor. Brother Forlani sent his students to investigate the operations of about eight payday-lending stores in the Dayton area. The students interviewed check cashers and inquired about offered services at the lending offices with an eye toward creating, on paper at least, a less costly alternative. “(We) got wind of his work,” said William Burke, president of Day-Air, referring to people on his staff and Doug Fecher, president of Wright-Patt. They kicked around ideas for a business plan and decided to the best option was to create a CUSO to run it. “At this stage, we think it’s a really doable thing.” Burke said that, “If we can charge a significant amount less than the payday lenders and bring the credit union philosophy to the business, we’re doing society as a whole a lot of good. And it’s a good business proposition.” Several hurdles remain, though. The group has to find a way to capitalize the CUSO and make sure it doesn’t run afoul of usury laws. Fecher said that in the Dayton area these lenders are charging approximately $15 per $100 borrowed, up to a maximum of $500 dollars. Check cashing is typically for 4% of the check amount. Fecher would like to be able to cash checks at 1% of the face amount but, he conceded, “It’s so early, I don’t know what it would charge.” Beyond the basic services, Fecher hopes the operation would mount an education component to teach these high-rate borrowers to manage their money better. Burke said he is confident that the operation can open its doors before the end of 2002. He said that, with the help of Brother Forlani, they hope to approach community development organizations for some seed capital. Fecher believes that credit union foundations and even credit union vendors might be persuaded to contribute capital. He also hopes to get other Dayton-area credit unions involved, but concedes that, for now, “They’re taking a wait-and-see attitude.” Fecher doesn’t necessarily believe that competition from credit unions will put commercial payday lenders out of business. He expects that, ultimately, legislation will do that. However, if that happens, he realizes that payday borrowers will still be looking for loans. “One of my primary motivations is that if we drive payday lenders out we don’t want to drive borrowers to loans sharks,” he said. “I don’t want to put them (loan sharks) back in business.” Brother Forlani is more optimistic than Fecher or Burke. He already has a location in mind and hopes the operation will be up and running by summer. For now, Wright-Patt is preparing to launch a program that will offer members a small, short-term line of credit that would be issued without going through typical underwriting procedures, such as getting a credit report. The loans would offer a $250 line of credit that had to be brought back to a zero balance within 30 days. “We’re calling it a bridge line of credit,” he said. “It’s a payday loan, but at 15% (interest).” Fecher said the credit line eventually could be converted into a longer-term loan. Fecher believes credit unions are sufficiently well capitalized to afford the risk of such loans. Fecher expects the bridge loan program to launch in one or two months. The payday lending project has no time horizon yet; it’s too early to know if it can even be done. Fecher said the two credit unions are writing a business plan that will include projections of loan volume and expenses. Once those estimates are established, they’ll know how much capital will be needed for a launch. As for the payday lending, Brother Forlani offered one additional concern, however. “The fly in the ointment is what if we open up and they lower their rates to put us out of business,” he said. -</p> <p>[email protected]</p>

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