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The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan prod

The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan product is patent nonsense!. Michael A. Stegman Presented at the Affordable, Responsible Short-Term Credit Conference Sponsored by Federal Deposit Insurance Corp.

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The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan prod

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  1. The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan product is patent nonsense! Michael A. Stegman Presented at the Affordable, Responsible Short-Term Credit Conference Sponsored by Federal Deposit Insurance Corp. Washington, DC September 29, 2005

  2. Why NCSECU experience is important to payday loan debate • Founded in 1937 with 17 members and $437 in assets, as of 2005, NCSECU has grown to 1.2 million members with more than $12 billion in assets. • For all intents and purposes, SECU is akin to a big bank or thrift; • If SECU can successfully market a more benign, affordable, and profitable payday loan product, all banks and thrifts can, if only they wanted to!

  3. The Supply Side of SALOs

  4. Comparing SALOswith other credit products • 52,000 SALOs vs: • 50,843 home equity lines of credit • 66,730 1st mortgage loans • 113,200 active credit card accounts • 151,600 open end personal loans

  5. Argument that conventional financial institutions cannot create a profitable payday loan alternative is patent nonsense! • North Carolina State Employees Credit Union (SECU) created the Salary Advance Loan (SALO) in 2001 • Since inception: • more than 52,000 customers • More than 1 million advances to date • $400 million total volume • 11.75%/12% APR (1/40th of typical payday loan APR) • $2.5 million in earned interest since inception • Net loss of $1 million in SALO principal • Net income of $1 million since inception • Average monthly volume is $12-$13 million

  6. Basic economics of SALO program

  7. Benchmarking SALOs Characteristics of SALOs • $500 maximum advance • $380 -- average advance • 28 days – average term • 11.75%/12% -- APR • 5% -- Amount of SALO must be deposited into special SALO savings account (instituted in March 2003) • 6 months – duration of suspension of SALO privileges for withdrawing money from SALO savings account • 1.40% -- # advances 60 days delinquent • 0.27% -- 2001-2004 annualized charge-offs as percent of total $ loaned • 16.5% -- recoveries since program inception as percent of total charge- offs

  8. The Demand Side of SALOs

  9. Who are SALO Customers? • Gross monthly direct deposit wage/salary of SALO customer is $2,125/month, or $25,500/year. • 79% of SALO customers have credit scores between 400-584. • Median age is around 38 • 4% -- SALO customers that have a SECU Credit • $307 -- average combined SECU share and money market account balances • 65% -- SALO customers take out monthly advances

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