Givens said Mazuma also wanted to put more incentives in place such as financial counseling. The credit union charges a $15 fee for every $100, which is lower than Missouri's $18 average, said Lisa Renner, CEO of CU Holding Company. A payday loan user will receive a $2 per $100 discount if they pay from a Mazuma checking or savings account and an additional $2 per $100 discount if they enroll in the credit union's educational program. These discounts are applicable in Missouri but because state laws vary, they may not be permissible in other states, according to XtraCash.

Renner said the payday lending statistics are staggering yet reveal a number of opportunities for credit unions to make their mark. In 2006, payday loans generated $37 billion including $8 billion in fees. There are currently more than 24,000 payday locations serving up to 19 million U.S. households. Sixty-eight percent of users are younger than 45 years old and 70% have household incomes exceeding $25,000. The stat that is the most "scary," Renner said, is at least 15% and up to 30% of credit union members and employees use payday loans.

"Payday lenders are smart," Renner said. "How long is it going to take for them figure out that 100% of [their] consumers have checking accounts and how long will it be before they start offering them checking accounts. We've got that many people at risk of walking out the door [of a credit union]."

Givens said "it's not that far of a stretch" that payday lenders could go that route. Many of them are affiliates of banks, and entities like Charles Schwab and ING Direct have already proven Web-based checking can be offered, he added.

"It's the 'we will make it easier for you' [approach]," Givens said of payday lenders offering checking accounts on the spot. "The checking account could be another point of vulnerability for users with higher fees and structures."

Homework

Mazuma conducted a focus group prior to its 2002 entry into payday lending with the outsourced vendor. The credit union found that there were 24 payday lending outlets within a three-mile radius of one of its branches. When asked if they had ever used a payday lender, nine of the 29 people in the focus group said yes. Several of those were credit union members.

Despite the continued perception that payday loan users are of a certain demographic, Givens said that is clearly not the case at Mazuma.

"The folks are well-educated, middle to upper middle class," Givens said. "Hey, life events happen to people regardless of demographics. [Payday lending] is color blind and age blind."

What is important to Mazuma is to ensure that payday loan users are educated about the process. They have the option of working with the credit union's financial counselor or taking a course through Educated Investor University, a Web-based financial education training program. While XtraCash is available to the general public, Givens said more than 90% of current users are Mazuma members.

XtraCash is starting to catch on. The $58 million Central Star Credit Union in Wichita, Kan. signed on with the CUSO in December. Renner said XtraCash is considering offering an Internet-based solution for those credit unions that don't want to offer the loans in the branches. Down the road, the CUSO will also look into purchasing payday lenders similar to transactions conducted by Wescom Credit Union and Kinecta Credit Union. Mazuma also won the 2007 Louise Herring Philosophy in Action award for its XtraCash program.

"When we're looking at issues like membership growth, wouldn't this be good for credit unions," Renner asked. "Payday loan users are much younger. That's also an issue for credit unions–bringing in younger members."

So far, the biggest payday lending challenge has been keeping up with the regulatory changes, Renner said. XtraCash was actually scheduled to open in January 2007, not March, but when a Kansas moratorium was issued during its launch week, the CUSO had to tweak its model. As a result, XtraCash continues to work closely with state and local officials to ensure that everything is up to regulatory code, she said.

Meanwhile, Givens said because payday lending is still relatively new in the credit union industry, due diligence is vital.

"A number of credit unions are getting into this on their own," Givens said. "By and large, the loss ratios and mechanisms show that this is specialized lending. An entity like XtraCash, which really knows what it's doing, can help credit unions with this type of lending."

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