BY BEN MORALES
Is your credit union losing business to traditional payday lenders? Small-dollar loans could very well be a missed opportunity for your CU. See how the implementation of such a product has benefited several credit unions and their members, and discover how it can become a sustainable revenue stream.
QCash Financial was originally a small-dollar loan product created for Washington State Employees Credit Union (WSECU) in response to tellers noticing that members were asking for money orders to pay off payday loans. After observing this pattern, the tellers approached the credit union’s president and CEO, Kevin Foster-Keddie, who began developing a product that would more effectively meet members’ needs. Using relationship-based lending practices and analyzing members’ deposit and withdrawal habits, the credit union was able to build an automated small-dollar loan product that cost members much less than traditional payday loans and created a sustainable revenue stream for WSECU. The original QCash loan product was launched in 2004 and has since grown into a separate CUSO, offering its technology to other community financial institutions as a white label solution.
- The Mission
Throughout its development, QCash Financial has made its corporate mission to reach underbanked consumers. According to the FDIC, almost 20 percent of Americans fall into this category by having either a very brief credit history or no history that can be reported, and they often do not qualify for traditional banking products such as credit cards or personal loans. These consumers are frequently forced to turn to unconventional sources for their needs because they are not eligible for traditional banking products. Payday lenders have often appealed to underbanked consumers because of the speed with which the loans are originated and because few applicants are declined. However, traditional payday loan offerings frequently create a cycle of debt that weakens consumers’ financial stability instead of offering solutions that improve consumers’ long-term financial health enough to reduce or eliminate their dependence on these loans.
- More than a Payday Loan Alternative
While small-dollar loan programs are traditionally seen as better alternatives to traditional payday loans, these programs can also serve as a means to help consumers avoid overdraft charges. Recently, Pew Charitable Trusts published an issue brief titled Consumers Need Protection from Excessive Overdraft Costs, which discusses a number of the issues related to the high costs of overdraft charges and key findings on how to reduce or eliminate the need for these charges. One of Pew Charitable Trusts’ recommendations based on the organization’s findings was to encourage financial institutions to offer access to small-dollar credit as a method of avoiding these charges. Affordable small-dollar lending programs could easily help consumers regain financial stability without facing expensive overdraft charges for insufficient funds.