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StretchPay

StretchPay. William Burke Chair, CUOSI CEO, Day Air Credit Union, Dayton, OH (937) 643-2160 wburke@dayair.org. What is StretchPay?. A reasonable ‘payday lending’ alternative …. opportunity to reach out to those with greatest need lower fees lower interest rates

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StretchPay

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  1. StretchPay William Burke Chair, CUOSI CEO, Day Air Credit Union, Dayton, OH (937) 643-2160 wburke@dayair.org

  2. What is StretchPay? A reasonable ‘payday lending’ alternative … • opportunity to reach out to those with greatest need • lower fees • lower interest rates • option of financial education

  3. StretchPay History Outgrowth of a public meeting on payday lenders in the city of Dayton in 2000 … City: • What can be done about all these payday lenders? Public: • “Take away payday lenders and we have nowhere to go when we need quick cash.” • “We can’t go to our credit union; they’ll turn us down just like the banks.”

  4. StretchPay History The public was right!Credit unions weren’t making short-term, low-dollar loans to the credit-impaired. • Wright Patt CU developed ‘bridge loan’ LOC • Other SW Ohio CUs interested • Different models considered • Pilot program developed with several Ohio CUs to test risk-sharing concept and compete with payday lending footprint

  5. A Cooperative Venture is born Credit Union Outreach Solutions, Inc. (CUOSI) … formed by 10 Ohio credit unions and the Ohio Credit Union League, June 2006 CUOSI: A cooperative organization to fuel outreach and community commitment initiatives, including StretchPay

  6. Credit Union Outreach Solutions, Inc. CUOSI Turnkey Outreach Products • StretchPay

  7. CUOSI Membership Growth Data through February 28, 2009

  8. CUOSI Membership - Nationwide 55 credit unions • 40 Ohio • 5Michigan • 3 Maryland • 1 Colorado • 1 Mississippi • 3 Wisconsin • 1 Washington DC 3 Leagues • Ohio • Wisconsin • Maryland-DC

  9. CUOSI 2009 Board of Managers 1.Bill Burke, DayAir CU, Chair 2.Dick Maslyk, MidState Educators CU, Vice Chair 3. Catherine Herring, Communicating Arts CU, Secretary/Treasurer 4.Doug Fecher, Wright-Patt CU 5. Tom Griffiths, Atomic Employees CU 6. Dorothy Lester, First General CU (Michigan) 7. Barry Shaner, Toledo Area Community CU Ex Officio Paul Mercer, President, Ohio Credit Union League Brett Thompson, President/CEO, Wisconsin Credit Union League

  10. CUOSI StretchPay annual enrollment fees paid by members are forwarded to CUOSI & “reserved-for-losses” for the CU Helps participating credit unions offset any loan losses

  11. StretchPay Specifics • Credit limits$250 ($35 annual fee); $500 ($70 annual fee) • 30-day term • 18% APR (or the maximum permitted by applicable law, whichever is lower) • Re-paid in full prior to additional advances • Payroll deduction is encouraged, but not required

  12. The difference A StretchPay borrower who takes 12-$250 advances in a year, will pay approximately $80 in fees & interest A traditional payday borrower may pay $975 for the same amount of credit ($37.50 in interest x 26 payments)

  13. An important differencefrom traditional payday lenders Borrower must repay their entire outstanding balance (plus interest) within 30 days before obtaining another advance.

  14. Reimbursement forCharge-off Loans • CUOSI set up to minimize credit unions’ loan losses • Credit union has some exposure … to create risk-sharing and encourage reasonable efforts to collect losses

  15. Underwriting Criteria An applicant must be … • A member for at least 60 days and not delinquent on existing loans or negative in any share account • 18 years or older • Have verifiable income • Not in the process of filing for bankruptcy • Not have caused any participating CU a loss

  16. StretchPay is less expensivethan traditional payday loans Borrowers pay: • 18% APR • A $35 annual fee for $250 • A $70 annual fee for $500 A traditional payday lender in Ohio might charge $15/$100 for a 28-day term

  17. Offer your members an alternative to payday lenders Without incurring the risk associated with small dollar, minimally underwritten loans

  18. Asset Size of CUs Offering StretchPay *Data is based on credit unions only and does not include participating leagues.

  19. The Numbers* • StretchPay advances YTD: 85,950 totaling $32.4 million • The number of StretchPay loans each credit union has made ranges from 11 to 43,000 and ranges in dollar amount from $2,750 to nearly $16.5 million. • The average 90-day delinquency ration is 3.74% and varies among credit unions depending on their individual underwriting criteria. * Data used is as of December 2008.

  20. National interest…in 2008… 52 CUs in 12 states, Washington DC, and Canada requested StretchPay information 20 Ohio CUs requested StretchPay information

  21. StretchPay In the News The Other Paper Columbus’s News & Entertainment Weekly Wednesday September 3, 2008 What will become of all the payday lending businesses? Stretch pay is the credit union’s payday loan alternative, according to Jeff Carpenter, vice president of membership and development at Wright-Patterson Credit Union. It was developed two years ago in Ohio and has spread to five other states: Michigan, Wisconsin, Maryland, Colorado and North Carolina. There are currently 28 locations that offer stretch-pay loans in Central Ohio. . . . “We have a totally different motive. We get to wake up and think about how we give back to our members,” Carpenter said. “Payday lenders get to wake up and figure out how to pay some stockholder.” • The Cleveland Plain Dealer • Payday lenders propose new fees • Posted by rroguski May 12, 2008 18:25PM • . . ."Basically, credit unions became a little more creative," he said. Kozlowski said credit unions came up with short-term signature loans and with payday alternatives like StretchPay, both of which come in under the state's 24 percent interest cap. . . . Roughly a dozen states have outlawed payday lending by refusing to exempt lenders from usury laws. StretchPay saved CU members $3 million plus in '07 DUBLIN, Ohio (2/29/08)--StretchPay, a credit union alternative to traditional payday lending, saved members of 31 credit unions more than $3 million in 2007. Credit unions in Ohio, Maryland, Michigan and the District of Columbia made 64,400 StretchPay salary advance loans last year, totaling nearly $25 million. They accumulated $476,000 in fees and $187,000 in interest at an annual percentage rate (APR) of 18%, according to the Ohio Credit Union League. Members borrowing the same amount at traditional payday lenders, which typically charge $15 per $100 borrowed and up to 391% APR, would have paid more than $3.7 million in interest and fees, said the league. Editorial: A wise state law would be the best curb on Ohio's payday lenders Thursday, January 03, 2008 … State legislators plan to hold hearings this month on proposals that would curb predatory lending. The best of three bills is the brainchild of Rep. William G. Batchelder, a Medina Republican. It would cap payday-loan interest rates at a 36 percent annual rate and includes other sound features.

  22. www.OhioCreditUnions.org/StretchPay.htm

  23. Common Questions Are we required to offer both the $250 and $500 lines of credit? No. You may choose to offer one or both. Is there a minimum income requirement for a member to obtain a StretchPay loan? Not at this time

  24. Common Questions Are members required to have a checking account in order to obtain a StretchPay loan? The program does not require it, but every CU has the choice of requiring one as part of its policies and procedures.

  25. Common Questions How do participating credit unions make comments about the operation of CUOSI, or the StretchPay product? An Advisory Council comprised of every StretchPay participant and the League will meet regularly via conference call to discuss any issues.

  26. Common Questions As a participating CU, is there any support for marketing the program to my membership? Marketing template materials are available for participating credit unions. Your costs would only be for customizing and printing of the materials.

  27. Quotes “The fees saved by members are incredible. And if people are in a repeat pattern of borrowing, we make every effort to get them into financial education counseling so that they can break free of the payday lending merry-go-round.” - Bill Burke, CEO, Day Air Credit Union “[Predatory lending] is an evil practice. Credit unions are working collaboratively to be part of the solution. It’s incumbent upon us to come to the aid of the consumer. If credit unions can’t solve this problem, no one can.” - Doug Fecher, CEO, Wright-Patt Credit Union

  28. Quotes “I was about to lose everything, totally everything. I went to a lot of financial institutions, and they turned me away. I feel like the credit union rescued me.” - Ora Houston, Member, Wright-Patt CU “[The StretchPay loan was] affordable and reasonable. …Trust is a real issue for me. We could trust the credit union a lot more.” - Paulette Strolia-Davis, Member, Day Air CU

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