StretchPay

1. StretchPay The Credit Union Salary Advance Loan Alternative Presented By: Doug Fecher, President/CEO Wright-Patt CU

2. StretchPay What is it? A special line-of-credit loan designed to make it easy and less expensive for members to get short term credit.

3. How StretchPay Began • Outgrowth of City of Dayton Public Meeting on Payday Lenders in 2000. • Public Statement: “If you take away the payday lenders, we’ll have nowhere to go when we need cash.” • Public Statement: “We can’t go to our credit union … they’ll turn us down just like the banks.”

4. The Public Was Right! Credit Unions don’t generally make short term, low dollar loans to the credit-impaired.

5. StretchPay Initial Principles Make it as much like a payday loan as possible. This means: • Limited credit check. • No payroll deduction requirement. • Fast and easy to make advances. But: Make it more affordable for members, with better repayment terms, and breakeven for the Credit Union.

6. StretchPay Initial Principles • A line-of-credit (to reduce the costs of making advances) with one distinguishing feature: Advances must be repaid in full before a new advance can be taken. • Interest rate of 18% ($3/month). • Maximum draw amount of $250. • Must be repaid in full in 30-days.

7. StretchPay Evolution • Tested a no fee model, a $25 annual fee model, and settled on $35 annual fee… • Developed pilot program with 11 southwestern Ohio CUs to test risk-sharing concept and compete with Payday Lending footprint… • “Fund” grew to over $50,000

8. StretchPay Today Borrowers pay a $35 annual fee for a $250 line-of-credit, and a $70 fee for a $500 line-of-credit…and 18% interest on their advances.

9. One Important Difference from Traditional Payday Loans … A borrower must repay their entire outstanding balance (plus interest) before any more advances are permitted.

10. A traditional payday lender might charge $15/$100 borrowed for as little as a two week term.

11. In other words . . . A StretchPay borrower who takes 12 advances on a $250 line-of-credit will incur approximately $77 in fees.

12. While a traditional payday borrower may pay $975 for the same amount of credit ($37.50 in interest x 26 payments).

13. Benefits to Members • It’s cheaper than a payday lender! • Helps build your credit history … goal is to wean borrowers to traditional sources of credit w/out fees • Allows members to receive financial counseling

14. Benefits to the CU: • It’s the right thing to do! • Fills a growing member need … • Gives access to members who were going elsewhere … • Doesn’t make money necessarily, but hey, we take this not-for-profit thing seriously!

15. StretchPay Evolution • Successful program that is being expanded nationwide… • Supported by Filene REAL Solutions and Ohio Credit Union League… • Formed a CUSO to facilitate the risk-sharing and nationwide implementation…

16. The CUSO Credit unions offer StretchPay lines-of-credit in association with a non-profit CUSO called Credit Union Outreach Solutions, Inc. (CUOSI).

17. The CUSO Each time you collect an annual fee from a StretchPay borrower, you forward the fee to the CUSO, which will, in turn, help your CU offset any credit losses sustained under the program.

18. Reimbursement for Charged-Off Loans • The CUSO will reimburse the credit union for 90% of the credit union’s losses. • 10% coverage by the CU creates risk-sharing and encourages CUs to make reasonable efforts to collect on their losses.

19. In other words … You can offer members an alternative to payday lenders without incurring the credit risk associated with small dollar, minimally underwritten loans.

20. Minimal Underwriting Criteria An applicant must … • Be a CU Member for at least 60 days and not be delinquent on existing loans or negative in any share account.

21. Minimal Underwriting Criteria An applicant must … • Be at least 18 years old.

22. Minimal Underwriting Criteria An applicant must … • Have verified income, not be in the process of filing for bankruptcy and not caused any participating CU a loss.

23. Specifics on StretchPay Loans • Credit limits/minimum advances -$250 ($35 annual fee) -$500 ($70 annual fee) • 30-Day Repayment Term

24. Specifics on StretchPay Loans • Advances must be paid in full prior to new/additional advances. • 18% Interest Rate (or the maximum permitted by applicable law, whichever is lower). • Payroll deduction is encouraged, but not required.

25. Results to Date • 16 Ohio credit unions (and the Ohio League) belong to the StretchPay CUSO. • Over 35 credit unions (from across the nation) and seven additional Leagues are considering participation.

26. Results to Date • $93,000 in Membership Fees • $40,000 left in fund from Pilot • $51,000 fees collected YTD • 14,000 Losses YTD • $171,000 in Fund Balance

27. To Join the Program Step One … Obtain Approval from your Board of Directors.

28. To Join the Program Step Two … Join the CUOSI by signing the membership agreements and paying a membership fee.

29. The Membership Fee • CU pays a fee of $25 per $1 million in assets, with a maximum fee of $15,000. • The fee is not an investment in the CUSO, and should be expensed on the CU’s books.

30. To Join the Program Step Three … Adopt a StretchPay Loan Policy and Procedure (a model P&P will be provided for adoption by your credit union).

31. To Join the Program Step Four … Set StretchPay up on your Data Processing System.

32. To Join the Program Step Five … Set up StretchPay Documents (line-of-credit app, note, agreement, T-I-L disclosure, closing letter and monthly remittance form).

33. To Join the Program Step Six … Train employees on the StretchPay Program.

34. To Join the Program Step Seven … Set up the Monthly Accounting System for fees and loss recovery.

35. To Join the Program Step Eight … Set up a Collection Effort Program.

36. To Join the Program Step Nine … Market the Program.

37. To Join the Program Step Ten … Offer the StretchPay Program to your Members.

38. Frequently Asked Questions “Is a CU required to offer both a $250 and $500 line of credit?” • No. A CU may offer the $250 credit line, the $500 credit line, or both.

39. Frequently Asked Questions “Is there a minimum income requirement for a member to open a StretchPay line-of-credit?” • Not at this time.

40. Frequently Asked Questions “Is a checking account required to open a StretchPay line-of-credit?” • Not system-wide, but each CU has the option of having such a requirement.

41. Frequently Asked Questions “How are comments regarding the operation of the CUSO, or the StretchPay product, made to the CUSO?” • An Advisory Council (made up of all StretchPay CUs and some League Reps) will meet regularly by conference call to discuss these issues.

42. Frequently Asked Questions “Would I receive help in marketing the program to my membership?” • Marketing materials have already been developed and will be made available for participating credit unions --- CU would only pay printing costs and for customization.

43. If you are interested . . . Contact John Florian at jflorian@ohiocul.org to receive sample operating and product agreements, as well as an implementation guide that includes a program overview.

44. Contact Information for Doug Fecher . . . Doug Fecher, President/CEO Wright-Patt Credit Union dfecher@wpcu.coop 937-912-7394