TAMPA -
NCUA Board Member Gigi Hyland brought the agencies' Access Across America series to the west coast of Florida last week to discuss short-term lending, free tax help for members and check cashing. More than a few eyebrows were raised as the lead seminar topic was how, or should, U.S. credit unions offer payday lending to members. Kitsch led the first session with Suncoast Schools FCU CEO Tom Dorety and TranDoCom Solutions EVP Kirk Chewning from Kennesaw, Ga.
Payday lending stores have gained a rather odious reputation among the public and Congress, especially in light of huge fees charged to American troops that critics say keep young military men and women in a cycle of debt. But payday lenders say they fill a need that traditional financial institutions- including most credit unions-are unwilling to fill.
TranDotCom Solutions EVP Kirk Chewning told the seminar that contrary to popular belief, consumers using the service aren't the bottom of the barrel of society: 68% are under 45 years old; 52% have some college or a degree; 42% own their own home and 100% have a steady income.
A payday lender can offer a first-time customer a cash amount in less than 10 minutes and a return customer can get approved in roughly three minutes, he noted. A credit union member himself, Chewning said payday lending can provide revenue for credit unions, show commitment to the membership and community and help break the cycle of debt with financial education and old-fashioned credit union concern for the member. A short-term loan can be part of a solution, he added, instead of discovering a member's problem's through a wave of NSF charges, courtesy pay events or late credit card payments.
"It's a proactive discussion with a member. 'I'm in a bind and what do I do?'" Chewning said regarding a troubled member. "The question is not to get into payday lending. It's how to serve your members with these financial needs."
Kitsch said research she did on behalf of the Filene Research Institute and the NCUF backs up much of what Chewning had to say, noting that payday lenders are growing because people use-and need-the services they offer.
"We in credit unions have this idea that when people go to a payday lender they don't know how much it costs. The reality is that 96% of customers know what they're being charged. Seventy percent remember their APR. People understand that payday loans are very, very expensive," Kitsch said. "It's fast, it's easy, it's convenient and people love them until they get in trouble with them. Access and convenience is what they're looking for. It's growing like crazy."
Kitsch told the audience that there are presently 22,000 payday-lending stores in America holding a combined loan portfolio of $28 billion. The total fees result in a $4-billion profit with the average loan size being only $325.
Even people who "ought to know better" are using payday lending services. Case in point, the senior loan officer at a credit union who told Kitsch that she uses payday loans all the time.
"I was shocked," Kitsch related.
The question: are payday lenders right when they say that they are offering a needed service, filling a whole no traditional financial institution can or is willing to fill? The answer doesn't have to be "yes."
"Small, short-term loans: we used to do it all the time," Kitsch said. "They need small loans, not credit cards. They're going to do it whether you like it or not."
Kitsch said the goal of any short term lending program has the ultimate goal, and responsibility to "mainstream" the public into the normal world of financial products and services. CUs wouldn't be in the business of rolling over small loans for years on end only to generate revenue.
"We can't help this member if we can't get him in the door," Kitsch said.
