PHOENIX — It may have raised a few eyebrows at a bankers' convention, but there was FDIC Chairman Sheila Bair singling out State Employees' Credit Union of Raleigh, N.C. in telling bankers just how to manage a successful payday loan product.
Though the banking regulator did not specifically cite "Salary Advance Loans" in her formal remarks to the American Bankers Association annual convention here, she mentioned the product three times in briefing reporters about the need for the banking industry to "do a better job" on payday alternatives.
Bair told journalists the CU's $500 maximum "Salary Advance Loan," which has a special 5% savings requirement, was a good "model" for banks to follow in developing payday alternatives suggesting also they might offer the product at higher rates than CUs and still be profitable.
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Banks still might have issues "with the tax-exemption" but they can learn from State Employees, she said.
Salary Advance has been on the market since 2001 with nearly $600 million loaned out with more than 68,000 loans.
The product deemed profitable at State Employees has been copied by CUs in North Carolina and across the country with some of the copycats including the savings component that was added on by the Raleigh-based CU in 2003.
Last month USA Today in a special article on the explosion of payday loans and where consumers could find favorable products to "halt the debt cycle" featured Salary Advance.
Bair told reporters that bankers need to look at payday alternatives "which will provide mutual benefits" to them and those consumers who badly need these services.
In her featured speech to the ABA convention, the FDIC chairman skipped over "Salary Advance" declaring "common sense tells me that this business has manageable risks and can be profitable, especially if the bank ties regular loan payments to a savings account so that borrowers have an automatic mechanism to build some financial cushion."
She went on to discuss recent contacts with military banks "which have indicated a willingness to try and work with the FDIC on developing and providing an affordable, small denomination loan product, possibly with a savings component" on bases.
She said the FDIC would convene a conference in December for these 125 banks near the bases "to provide information and share ideas on successful product and marketing strategies" and also to discuss interest-cap legislation in the Congress sponsored by U.S. Sen. Jim Talent (R-Mo.).
Regarding Salary Advance, Philip Greer, senior vice president of loan administration at State Employees, said he was not surprised at Bair's mention of State Employees since prior to her appointment to her present job last June she had produced payday studies through her professorial work at the University of Massachusetts in Amherst.
Greer said he had several phone conversations with Bair providing her with data on the State Employees' program and its positive results.
"Yes, it was certainly" appreciated, he said, to hear his employer singled out.
That's the case even if she referred to State Employees all three times as "North Carolina Employees Credit Union."
"I'll forgive her," laughed Greer.
On another topic in her speech, the FDIC chairman said a moratorium imposed in August on Wal-Mart and Home Depot industrial loan applications would remain in limbo through the end of January when a decision would likely be rendered by the agency.
She defended her delay on the insurance applications as correct in light of the political firestorm in Congress over ILCs as well as safety and soundness concerns.
Later at the press briefing she said, "litigation was a risk" should Wal-Mart take the agency to court to win approval of the application. –[email protected]
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