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BALTIMORE-Five credit unions were recognized in a recent study for their efforts to combat payday lending, while NCUA Board Member Debbie Matz was commended for speaking out on the issue. Sheila Bair, the dean’s professor of financial regulatory policy at the University of Massachusetts-Amherst School of Management, released a study of the battle against predatory payday lenders and alternatives. The former Treasury official performed the study, Low-Cost Payday Loans: Opportunities and Obstacles, for the Annie E. Casey Foundation, which works to build better futures for disadvantaged children. The 83-page report cited five credit unions as models for alternative payday loan providers and noted Matz as “the one federal financial regulator who has been the most vocal supporter of depository institutions developing their own low-cost payday loan alternatives.” Bair highlighted State Employees’ Credit Union’s (Raleigh, N.C.) Salary Advance Loan (SALO), which it initiated in 2001. SALO is a revolving loan with a maximum outstanding balance of $500 at 12% APR. Whereas payday lenders charge a fee that amounts to an APR in the triple-digits, SECU’s $500, two-week loan costs less than $2.50. Five percent of the loan has to go into a special savings account, and it must also be repaid in full through automatic deduction at the next payday. If the member withdraws from the savings account, they cannot get another SALO for six months. “The mandatory savings feature is popular with NCSECU members, many of whom report that this is the first time in their lives that they have had any significant savings,” the report read. “It has also reduced NCSECU’s credit risk by providing increased security for SALO loans.” SECU, one of the largest credit unions in the country, has had success with the product with about 40,000 users. Of more than $305 million in SALOs made, SECU earned nearly $2 million in interest income. It has also gotten the credit union an additional $6 million in deposits. Annualized charge-offs from the program came to 0.24%, most of which came from members with FICO scores of 540 or less. The report also cited $46 million Windward Community Federal Credit Union’s Personal Signature Loan, which uses flexible underwriting standards to make loans up to $2,000 to members of the community it serves; the credit union was initially chartered to serve the Marine Corps Base Hawaii Personnel but has expanded to a community charter. Loan officers are authorized to make the loan at the time of application and pull a credit report only to determine the member’s ability to repay the loan. The interest rate at the time of Bair’s study was 10.9% but can go up to 12.9% for members with impaired credit. Most of the loans are $500 or less and are six-month installment loans. “According to Windward staff, the credit union makes very little money off the loans, but believes the product is justified as a customer service and in helping customers build a credit history that may qualify them for larger loans down the road,” Bair wrote. The report also focused on programs at Pentagon Federal Credit Union in Alexandria, Va.; ASI Federal Credit Union in Harahan, La.; Windward Federal Credit Union in Kailua, Hawaii; and North Side Community Federal Credit Union in Chicago. Banks featured included Austin Bank of Chicago, La Salle Bank, N.A., and Citibank. “This report demonstrates that whether a credit union has more than $10 billion in assets or less than $10 million, they can leverage the resources to meet the urgent needs of members from all walks of life,” Matz emphasized. The report, which was distributed at Matz’ Partnering and Leadership Successes workshop July 7, is available at www.aecf.org or in limited supply from Matz’ office. “I hope that this report inspires more credit unions to offer affordable alternatives to the payday loans which are trapping millions of consumers in a vicious cycle of debt,” she commented. “If more credit unions could build on the successful models which are presented so well in this report, millions more disadvantaged consumers would be able to provide better futures for their children.” -

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