Credit Unions Save Pennsylvanians Over $600K With Alternative-to-Payday Loan Program

Joyce Moed, Credit Union Journal
October 2, 2007 | COMMENTS

Since the Credit Union Better Choice program's launch last October, 54 credit unions have agreed to offer the loans designed to be an alternative to payday lending, and 41 of those credit unions have made 1,661 loans totaling $869,149.

The Credit Union Better Choice program was developed by the Pennsylvania Credit Union Association, in conjunction with the Pennsylvania State Treasury. "The idea was initially started by our state banking regulator at the time (Bill Schenck)," said Michael Wishnow, vice president-marketing and communications for PCUA. "He challenged credit unions in Pennsylvania to develop an alternative to payday lending. He planted the seed. As we had begun to develop this program, the State Treasury got involved. They reached out to us, and we explained what they were doing. They asked, 'How can we help get it off the ground?'"

The answer: the State Treasury could help by making an investment. The state requested a footprint for them to consider before deciding whether to make an investment. "By January 2007 we had built a sufficient footprint," Wishnow said. "And the Treasury invested $20 million. This was the first time Treasury dollars were invested in credit unions."

A typical $500-payday loan costs consumers $15 for every $100 borrowed, or approximately $450 over 90 days, according to PCUA. A $500 Credit Union Better Choice loan costs consumers approximately $42.50 for the same 90 days, and at the end of the loan term, the consumer has $50 in a savings account that allows them to develop a savings habit. The loan can be for any amount up to $500 for a 90-day term. Payments can be made monthly, weekly, or bi-weekly, at the specific credit union's discretion. There is a $25 one-time application fee, and an 18% APR.

The program is also designed to help borrowers gain more financial stability in the future.

"Ten percent of the loan amount goes into a savings account, and the credit union is required to provide some financial counseling," Wishnow said.

Wishnow explained that there are two types of lending institutions: ones that build wealth, and ones that strip wealth. Those that build wealth include banks, credit unions, and stockbrokers, he said. Ones that strip wealth include payday lenders, title lenders, and check cashers. "Our goal is to take people being stripped of their wealth and move them into a wealth-building situation," he said.

Borrowers must also become members of the credit union to be able to get the loan. "Through Pennsylvania 's credit unions, consumers, especially those living paycheck to paycheck, are able to access affordable small loans," said PCUA CEO Jim McCormack.

The initial results show that Pennsylvanians saved an average of 80 cents in loan fees and costs for every dollar borrowed through a Credit Union Better Choice loan rather than through a typical loan from a payday lender. This translates into more than $619,000 that consumers kept in their own pockets by using credit unions that offer Credit Union Better Choice loans. "We are extremely proud of these early results," McCormack said.

These initial results were gathered from semi-annual results provided by participating credit unions with year-end numbers to be reported early next year. "While the numbers for the first reporting period are indeed impressive, it is our hope that as more credit unions offer the Credit Union Better Choice program, the savings to consumers will continue to grow," McCormack said.

Robin Wiessman, Association treasurer, agrees.

"I am very pleased by the success of this program in its first eight months and look forward to its continued growth and expansion, so that few and fewer Pennsylvania consumers suffer from the exorbitant fees and demanding repayment schedules enforced by many payday loans," she said.

Wishnow is also expecting growth for the program. "My gut tells me that amount will double or more-than-double in the next six months," he said.

This article appeared at www.cujournal.com and is reprinted with permission.