StretchPay - Wright Patt FCU


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Overview - The Credit Union Salary Advance Loan Alternative

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StretchPay - Wright Patt FCU

  1. 1. StretchPay The Credit Union Salary Advance Loan Alternative Presented By: Doug Fecher, President/CEO Wright-Patt CU
  2. 2. StretchPay <ul><li>What is it? </li></ul><ul><li>A special line-of-credit loan designed to make it easy and less expensive for members to get short term credit. </li></ul>
  3. 3. How StretchPay Began <ul><li>Outgrowth of City of Dayton Public Meeting on Payday Lenders in 2000. </li></ul><ul><li>Public Statement: “If you take away the payday lenders, we’ll have nowhere to go when we need cash.” </li></ul><ul><li>Public Statement: “We can’t go to our credit union … they’ll turn us down just like the banks.” </li></ul>
  4. 4. The Public Was Right! Credit Unions don’t generally make short term, low dollar loans to the credit-impaired.
  5. 5. StretchPay Initial Principles <ul><li>Make it as much like a payday loan as possible. This means: </li></ul><ul><ul><li>Limited credit check. </li></ul></ul><ul><ul><li>No payroll deduction requirement. </li></ul></ul><ul><ul><li>Fast and easy to make advances. </li></ul></ul><ul><li>But: Make it more affordable for members, with better repayment terms, and breakeven for the Credit Union. </li></ul>
  6. 6. StretchPay Initial Principles <ul><li>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. </li></ul><ul><li>Interest rate of 18% ($3/month). </li></ul><ul><li>Maximum draw amount of $250. </li></ul><ul><li>Must be repaid in full in 30-days. </li></ul>
  7. 7. StretchPay Evolution <ul><li>Tested a no fee model, a $25 annual fee model, and settled on $35 annual fee… </li></ul><ul><li>Developed pilot program with 11 southwestern Ohio CUs to test risk-sharing concept and compete with Payday Lending footprint… </li></ul><ul><li>“ Fund” grew to over $50,000 </li></ul>
  8. 8. StretchPay Today <ul><li>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. </li></ul>
  9. 9. One Important Difference from Traditional Payday Loans … <ul><li>A borrower must repay their entire outstanding balance (plus interest) before any more advances are permitted. </li></ul>
  10. 10. <ul><li>A traditional payday lender might charge $15/$100 borrowed for as little as a two week term. </li></ul>
  11. 11. In other words . . . <ul><li>A StretchPay borrower who takes 12 advances on a $250 line-of-credit will incur approximately $77 in fees. </li></ul>
  12. 12. <ul><li>While a traditional payday borrower may pay $975 for the same amount of credit ($37.50 in interest x 26 payments). </li></ul>
  13. 13. Benefits to Members <ul><li>It’s cheaper than a payday lender! </li></ul><ul><li>Helps build your credit history … goal is to wean borrowers to traditional sources of credit w/out fees </li></ul><ul><li>Allows members to receive financial counseling </li></ul>
  14. 14. Benefits to the CU: <ul><li>It’s the right thing to do! </li></ul><ul><li>Fills a growing member need … </li></ul><ul><li>Gives access to members who were going elsewhere … </li></ul><ul><li>Doesn’t make money necessarily, but hey, we take this not-for-profit thing seriously! </li></ul>
  15. 15. StretchPay Evolution <ul><li>Successful program that is being expanded nationwide… </li></ul><ul><li>Supported by Filene REAL Solutions and Ohio Credit Union League… </li></ul><ul><li>Formed a CUSO to facilitate the risk-sharing and nationwide implementation… </li></ul>
  16. 16. The CUSO <ul><li>C redit unions offer StretchPay lines-of-credit in association with a non-profit CUSO called Credit Union Outreach Solutions, Inc. (CUOSI). </li></ul>
  17. 17. The CUSO <ul><li>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. </li></ul>
  18. 18. Reimbursement for Charged-Off Loans <ul><li>The CUSO will reimburse the credit union for 90% of the credit union’s losses. </li></ul><ul><li>10% coverage by the CU creates risk-sharing and encourages CUs to make reasonable efforts to collect on their losses . </li></ul>
  19. 19. In other words … <ul><li>You can offer members an alternative to payday lenders without incurring the credit risk associated with small dollar, minimally underwritten loans. </li></ul>
  20. 20. Minimal Underwriting Criteria <ul><li>An applicant must … </li></ul><ul><li>Be a CU Member for at least 60 days and not be delinquent on existing loans or negative in any share account. </li></ul>
  21. 21. Minimal Underwriting Criteria <ul><li>An applicant must … </li></ul><ul><li>Be at least 18 years old. </li></ul>
  22. 22. Minimal Underwriting Criteria <ul><li>An applicant must … </li></ul><ul><li>Have verified income, not be in the process of filing for bankruptcy and not caused any participating CU a loss. </li></ul>
  23. 23. Specifics on StretchPay Loans <ul><li>Credit limits/minimum advances -$250 ($35 annual fee) </li></ul><ul><li>-$500 ($70 annual fee) </li></ul><ul><li>30-Day Repayment Term </li></ul>
  24. 24. Specifics on StretchPay Loans <ul><li>Advances must be paid in full prior to new/additional advances. </li></ul><ul><li>18% Interest Rate (or the maximum permitted by applicable law, whichever is lower). </li></ul><ul><li>Payroll deduction is encouraged, but not required. </li></ul>
  25. 25. Results to Date <ul><li>16 Ohio credit unions (and the Ohio League) belong to the StretchPay CUSO. </li></ul><ul><li>Over 35 credit unions (from across the nation) and seven additional Leagues are considering participation. </li></ul>
  26. 26. Results to Date <ul><li>$93,000 in Membership Fees </li></ul><ul><li>$40,000 left in fund from Pilot </li></ul><ul><li>$51,000 fees collected YTD </li></ul><ul><li>14,000 Losses YTD </li></ul><ul><li>$171,000 in Fund Balance </li></ul>
  27. 27. To Join the Program <ul><li>Step One … </li></ul><ul><li>Obtain Approval from your Board of Directors. </li></ul>
  28. 28. To Join the Program <ul><li>Step Two … </li></ul><ul><li>Join the CUOSI by signing the membership agreements and paying a membership fee. </li></ul>
  29. 29. The Membership Fee <ul><li>CU pays a fee of $25 per $1 million in assets, with a maximum fee of $15,000. </li></ul><ul><li>The fee is not an investment in the CUSO, and should be expensed on the CU’s books. </li></ul>
  30. 30. To Join the Program <ul><li>Step Three … </li></ul><ul><li>Adopt a StretchPay Loan Policy and Procedure (a model P&P will be provided for adoption by your credit union). </li></ul>
  31. 31. To Join the Program <ul><li>Step Four … </li></ul><ul><li>Set StretchPay up on your Data Processing System. </li></ul>
  32. 32. To Join the Program <ul><li>Step Five … </li></ul><ul><li>Set up StretchPay Documents (line-of-credit app, note, agreement, T-I-L disclosure, closing letter and monthly remittance form). </li></ul>
  33. 33. To Join the Program <ul><li>Step Six … </li></ul><ul><li>Train employees on the StretchPay Program. </li></ul>
  34. 34. To Join the Program <ul><li>Step Seven … </li></ul><ul><li>Set up the Monthly Accounting System for fees and loss recovery. </li></ul>
  35. 35. To Join the Program <ul><li>Step Eight … </li></ul><ul><li>Set up a Collection Effort Program. </li></ul>
  36. 36. To Join the Program <ul><li>Step Nine … </li></ul><ul><li>Market the Program. </li></ul>
  37. 37. To Join the Program <ul><li>Step Ten … </li></ul><ul><li>Offer the StretchPay Program to your Members. </li></ul>
  38. 38. Frequently Asked Questions <ul><li>“ Is a CU required to offer both a $250 and $500 line of credit?” </li></ul><ul><li>No. A CU may offer the $250 credit line, the $500 credit line, or both. </li></ul>
  39. 39. Frequently Asked Questions <ul><li>“ Is there a minimum income requirement for a member to open a StretchPay line-of-credit?” </li></ul><ul><li>Not at this time. </li></ul>
  40. 40. Frequently Asked Questions <ul><li>“ Is a checking account required to open a StretchPay line-of-credit?” </li></ul><ul><li>Not system-wide, but each CU has the option of having such a requirement. </li></ul>
  41. 41. Frequently Asked Questions <ul><li>“ How are comments regarding the operation of the CUSO, or the StretchPay product, made to the CUSO?” </li></ul><ul><li>An Advisory Council (made up of all StretchPay CUs and some League Reps) will meet regularly by conference call to discuss these issues. </li></ul>
  42. 42. Frequently Asked Questions <ul><li>“ Would I receive help in marketing the program to my membership?” </li></ul><ul><li>Marketing materials have already been developed and will be made available for participating credit unions --- CU would only pay printing costs and for customization. </li></ul>
  43. 43. If you are interested . . . <ul><li>Contact John Florian at [email_address] to receive sample operating and product agreements, as well as an implementation guide that includes a program overview. </li></ul>
  44. 44. Contact Information for Doug Fecher . . . <ul><li>Doug Fecher, President/CEO </li></ul><ul><li>Wright-Patt Credit Union </li></ul><ul><li>[email_address] </li></ul><ul><li>937-912-7394 </li></ul>