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SUMTER, S.C. – In bid to aid the underserved and still make a profit on car loans to borrowers with poor payment records, SAFE Federal Credit Union has been offering an unusual product that is priced to assist the member who ordinarily would be denied credit. The “Fresh Start” program, which places stringent rules on borrowers to ensure all payments are made on time “without fail” during the length of the loan, has been on the market since last September and “only last month had our first loss of $10,000 and that’s after 212 loans of $2 million on the books,” said John Maroney, vice president of lending. Under the program, members who must agree to any number of special rules and sign binding documents, can receive a car loan priced at 18% – well above the standard 4.9% with the rate reverting to 4.9% if the borrower has not missed a payment for the first 18 months of the loan. “I guess I don’t know of any other credit union offering this kind of loan, but we think it is a means to help out those in the market whose credit is so bad that this is their only hope,” said Maroney emphasizing that the $425 million CU is careful in “making an objective judgment call” on the most worthy borrowers. The average loan is $8,000-$9,000. The borrowers may be those who fall victim to any number of circumstances including job loss or divorce “and have simply ruined their credit,” said Maroney who described “Fresh Start” as a form of “risk-based lending.” Rather than watch a member fall prey to a payday lender or finance firm racking up 30-40% rates, the CU provides the 18% alternative, “but if he or she misses a payment” the repossession moves are swift and “without notice.” A loan is considered delinquent after 30 days. Both senior loan officers and collections personnel have scripts which are read to borrowers to make sure they understand the “Fresh Start” rules before a loan is made and as a reminder when a first payment is due. One line reminds the borrower that the SAFE service is a “no nonsense program” and that “if you don’t make your payments on time we will mail two late notices to you,” and if “you still don’t make your payment we will be forced to repossess your vehicle without any notice.” Borrowers are required “to keep collision and comprehensive insurance” on the vehicle, noted the script. “We check references right in front of them,” explained Maroney noting that the lender asks a borrower “if he or she knows the folks” who are listed and then makes the calls. In addition, the loan officer may ask for a copy of home or cell phone bills since there is information on them useful to collections in tracking down borrowers, said Maroney, adding “the phone bills contain the names of an awful lot of friends which can be helpful on the recovery side,” Maroney said he has had the “Fresh Start” idea for years though he has used data from the subprime program offered by the Centrix Corp. program in Denver in which the firm provides an insurance guarantee to participating CUs on non-standard loans which are underwritten and sold in the secondary market. A number of state credit union leagues have endorsed the Centrix program as a means of assisting borrowers with poor credit. “Time will tell if our program really works, and you know this is something that requires a lot of trust from your board,” said Maroney contending he is glad to have received it. “I have a few more plans in mind and some of those might be considered radical.” He declined to spell out what those might be except they involve loan products. Maroney said one image problem in promoting Fresh Start has been in trying to steer clear of the idea that the 98,000-member CU is “going after deadbeats.” To counter that message, Maroney said SAFE “has done a couple of billboards, one of which has big white target with `yes’ in the middle” and a new one that went up three weeks ago “with a blackboard showing six months on the job, plus no credit equals car loan.” The product, he continued, is basically “hard to market since you’re trying to come up with a positive phrase for bad credit. We don’t want the message to get out, `if you’re a deadbeat, call us.” At the same time, “we don’t want to look or act like a finance company,” he said, noting also car dealers in Sumter are well aware of the program and as might be expected, “are supportive of it.” Maroney said Fresh Start was created with the idea of assisting members who desperately need to get their credit ratings rebuilt. “We’ve long known that the automobile is an important part” of that scenario “and this represents a last chance for the individual to own a car” and still restore credit. The first line of the loan script reads, “Your loan has been approved on a special program we call `Fresh Start.’ It is designed to give you a chance to rebuild with good credit.” The script goes on to delineate the 18% rate noting, “after you have made 18 monthly payments on time, you can call us and we will lower your interest rate.” That “will also give you a good credit rating from us,” the script concluded. -

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