The credit union alternative

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The credit union alternative to payday loans
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Credit Unions Different from Banks

• Not-for-profit financial cooperatives.
• Capital raised only through retained earnings.
• Serve only field of membership as defined by its
  charter and regulator.

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Credit Unions Pennsylvania Landscape

• 8,630 credit unions nationally
• 626 in Pennsylvania
• 265 lt 5 million
• 193 5 - 20 million
• 128 20 - 100 million
• 40 gt 100 million

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Fixing the PayDay Lending Problem

• Legislative initiatives in Pennsylvania
  unsuccessful
• strong opposition efforts by payday lending
  groups.
• Regulatory efforts ineffective.
• PA Banking Department pro-active.
• Litigation against Advance America.

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Backdrop

• Top PA Banking Department agenda item to curb
  abusive lending against consumers.
• Former Treasurer Bob Casey interested in
  addressing payday lending issue.

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Mutual Goals

• Transition borrowers from wealth-stripping
  products to wealth-building products.
• Break the cycle of debt and encourage savings.
• Provide lower-cost alternatives to existing
  payday lending products.

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Credit Union Better Choice Our Answer

• Short-term installment loan 30, 60, 90
  days.
• Loan payments options weekly, bi-weekly, or
  monthly.
• Max loan amount 500 (575).
• Application fee 25 (or less).
• Max interest rate 18.

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Credit Union Better Choice Other Features

• Available to current or eligible members.
• Loan decision without considering credit score or
  past credit history.
• No rollovers and no additional loans until loan
  is paid off.
• Financial counseling available.

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Credit Union Better Choice Required Savings

• 10 above requested loan amount is deposited into
  members savings account. Borrower cannot withdraw
  deposit or close the account until the loan is
  paid in full.
• Interest paid on required 10 deposit is rebated
  to the member if loan is paid off according to
  term.

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Credit Union Better Choice Motives

• Product is intended to break-even.
• Segue consumer to traditional, mainstream credit
  union products and services.
• Provide consumers with financial education
  opportunities.
• Repayment history reported.

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Credit Union Better Choice Support

• Lenders are credit unions operating in
  Pennsylvania.
• Created by the Pennsylvania Credit Union
  Association.
• Supported by the Pennsylvania Treasury
  Department.
• Endorsed by the Pennsylvania Department of
  Banking.

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Pennsylvania Treasury Participation

• Addresses Treasurers concern over debt trap
  ensnaring Pennsylvanians.
• Treasurer and Treasury staff promote Credit Union
  Better Choice Program
• Webinar participation.
• Promoted on Treasury Web site.
• Letters to credit unions.
• Press Releases.
• Planned targeted mailings.

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Pennsylvania Treasury Commitment

• 20 million dollar investment in the credit union
  system.
• State receives market rate-of-return on
  investment.
• Monies earned above market return fund the loan
  loss pool.

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Treasury Proceeds How are they used?

• Credit unions reimbursed up to 50 of losses.
• Credit unions must follow their normal
  collections procedures prior to making
  reimbursement claim.
• Claims exceeding the total amount of available
  funds will be reimbursed on a pro rata basis.

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Member Example

• Member Robert applies for a 500 Credit Union
  Better Choice Loan and requests that the 25
  application fee be added to his loan balance.
• Credit union opens a savings account for Robert
  and deposits 50 into the account. Roberts
  principal loan balance is 575.

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Member Example

• Robert agrees to make three monthly payments of
  197.45.
• Total interest paid over 90 days is 17.34.
• Credit union rebates 2.25 in interest to Robert
  when loan is paid in full. Robert has 52.25 in
  savings.

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Product Comparison
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Credit Union Better Choice Where we are

• Program launched on Oct. 19, 2006, with 25 credit
  unions and 108 locations.
• As of March 14, 47 credit unions and 147
  locations enrolled (numbers continue to
  increase).
• Semi-annual reporting required.

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Credit Union Better Choice Product Variations

• Community credit union in northeast PA offering
  product for 15 application fee and 13.5
  interest rate.
• Community credit union in southeastern PA offers
  product with an interest rate of 16 if payments
  made via direct deposit.

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Credit Union Better Choice Real Stories

• Credit unions contacting existing payday lender
  users, as identified through ACH reports, to
  offer Credit Union Better Choice product.

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Credit Union Better Choice Real Stories

• Last summer, woman found herself short on cash,
  so she got a payday loan. She was paying 150
  monthly, with only 20 towards principal. In
  December, she got a Credit Union Better Choice
  loan from a central PA credit union to pay off
  that loan and make her situation better.

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Credit Union Better Choice Real Stories

• Domestic violence victim left with no cash took
  out loan to buy Christmas gifts for child and
  make car payment (then moved car loan to credit
  union).
• New police academy graduates using loans to
  purchase gun and vest.

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Credit Union Better Choice Better Choices

• Many credit unions are reporting that the Credit
  Union Better Choice loans are being paid back
  using the monies from tax refunds, in lieu of
  using higher priced tax refund anticipation loans.

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Credit Union Better Choice

• Thank You!
• Questions?