ORLANDO, Fla. – A Future Forum education session on the credit union boards' role in serving members of modest means revved up the officials and got them hashing out the issues amongst themselves. "You can't understand what your role is until you understand who this group is," Wisconsin Credit Union League Vice President of Operations Jim Drogue said. He explained that these people are often of modest incomes, immigrants, young or seniors, and even credit union employees. They generally are not using mainstream financial services. "What does that mean? The majority of them are using alternative financial services providers," he said, and they are ripe for the credit union picking.
Drogue explained that Wright-Patt Federal Credit Union initiated a "stretch pay" program to compete with the local payday lenders. For $35 a year, credit union members can take out 12 $250 loans a year, one at a time. The program has been worked so well, the credit union is setting up a CUSO to help other credit unions participate.
One obstacle is that alternate financial service providers are ubiquitous; there are more of them than McDonalds, Burger King, Wal-Marts, Sears, Targets, and J.C. Penney's combined, according to Drogue. Another interesting point, he said, is that payday loan providers require checking accounts, so obviously these customers are in the financial services mainstream.
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Especially among young adults who are looking for convenience, Drogue said, "We're not doing a very good job of encouraging them.Quite honestly, that's the future of credit unions."
One audience member said she would rate the credit unions "almost-almost-as poorly as the banks" at serving the underserved.
Another credit union official from California pointed out that Bank of America has aggressively been working to attract the Hispanic population in the state.
Others were concerned about being able to sustain the appropriate programs for these members, while still others said NCUA and other regulatory obligations have been prohibitive to offering these types of programs.
Drogue said that credit unions need to get creative with their products and their underwriting. Explain to NCUA that you are only providing a service your members want and need. He admitted, "The problem is credit union regulators frown on bad loans or shady loans." One audience member strongly agreed with the statement that NCUA "hammered" them for having too much D and E paper.
On the other hand, he emphasized, "Nobody is asking credit unions to step up to the plate and take some losses."
These programs do not cost a lot either. Payday lenders' portfolios are only around $100,000; they just turn it over every two weeks. From that the industry brings in $3.7 billion in revenue each year.
There is also an education component credit unions can offer along with the services. According to research by Filene and others, 96% of users are aware of the finance charge and 78% recalled it being disclosed as an APR. "The fee isn't their biggest concern. They want it easy. They want it quick," Drogue said. Users described the outlets as fast, easy, clean, comfortable and convenient, he added.
Payday users admitted the services were expensive, but they felt it was their last hope, it was convenient and the attendants were friendly. Additionally, people who use alternative service providers said check cashers were open longer hours, are convenient, often speak their language, and are less intimidating. Drogue encouraged the audience to take a field trip out to the local alternative financial services providers.
Providing competing services at your credit union also creates a good income stream for the institution, builds member relationships, helps reach out to underserved markets to get them in the door to educate them, and offers the service at a better rate. [email protected]
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