StretchPay

1
StretchPay

• The Credit Union Salary Advance Loan Alternative
• Presented By Doug Fecher, President/CEO
  Wright-Patt CU

2
StretchPay

• What is it?
• A special line-of-credit loan designed to make
  it easy and less expensive for members to get
  short term credit.

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How StretchPay Began

• Outgrowth of City of Dayton Public Meeting on
  Payday Lenders in 2000.
• Public Statement If you take away the payday
  lenders, well have nowhere to go when we need
  cash.
• Public Statement We cant go to our credit
  union theyll turn us down just like the banks.

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The Public Was Right!

• Credit Unions dont generally make short term,
  low dollar loans to the credit-impaired.

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StretchPay Initial Principles

• Make it as much like a payday loan as possible.
  This means
• Limited credit check.
• No payroll deduction requirement.
• Fast and easy to make advances.
• But Make it more affordable for members, with
  better repayment terms, and breakeven for the
  Credit Union.

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StretchPay Initial Principles

• 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.
• Interest rate of 18 (3/month).
• Maximum draw amount of 250.
• Must be repaid in full in 30-days.

7
StretchPay Evolution

• Tested a no fee model, a 25 annual fee model,
  and settled on 35 annual fee
• Developed pilot program with 11 southwestern Ohio
  CUs to test risk-sharing concept and compete with
  Payday Lending footprint
• Fund grew to over 50,000

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StretchPay Today

• Borrowers pay a 35 annual fee for a 250
  line-of-credit, and a 70 fee for a 500
  line-of-creditand 18 interest on their
  advances.

9
One Important Difference from Traditional Payday
Loans

• A borrower must repay their entire outstanding
  balance (plus interest) before any more advances
  are permitted.

10

• A traditional payday lender might charge
  15/100 borrowed for as little as a two week
  term.

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In other words . . .

• A StretchPay borrower who takes 12 advances on a
  250 line-of-credit will incur approximately 77
  in fees.

12

• While a traditional payday borrower may pay 975
  for the same amount of credit (37.50 in interest
  x 26 payments).

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Benefits to Members

• Its cheaper than a payday lender!
• Helps build your credit history goal is to wean
  borrowers to traditional sources of credit w/out
  fees
• Allows members to receive financial counseling

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Benefits to the CU

• Its the right thing to do!
• Fills a growing member need
• Gives access to members who were going elsewhere
  
• Doesnt make money necessarily, but hey, we take
  this not-for-profit thing seriously!

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StretchPay Evolution

• Successful program that is being expanded
  nationwide
• Supported by Filene REAL Solutions and Ohio
  Credit Union League
• Formed a CUSO to facilitate the risk-sharing and
  nationwide implementation

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The CUSO

• Credit unions offer StretchPay lines-of-credit
  in association with a non-profit CUSO called
  Credit Union Outreach Solutions, Inc. (CUOSI).

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The CUSO

• 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.

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Reimbursement for Charged-Off Loans

• The CUSO will reimburse the credit union for 90
  of the credit unions losses.
• 10 coverage by the CU creates risk-sharing and
  encourages CUs to make reasonable efforts to
  collect on their losses.

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In other words

• You can offer members an alternative to payday
  lenders without incurring the credit risk
  associated with small dollar, minimally
  underwritten loans.

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Minimal Underwriting Criteria

• An applicant must
• Be a CU Member for at least 60 days and not be
  delinquent on existing loans or negative in any
  share account.

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Minimal Underwriting Criteria

• An applicant must
• Be at least 18 years old.

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Minimal Underwriting Criteria

• An applicant must
• Have verified income, not be in the process of
  filing for bankruptcy and not caused any
  participating CU a loss.

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Specifics on StretchPay Loans

• Credit limits/minimum advances -250 (35 annual
  fee)
• -500 (70 annual fee)
• 30-Day Repayment Term

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Specifics on StretchPay Loans

• Advances must be paid in full prior to
  new/additional advances.
• 18 Interest Rate (or the maximum permitted by
  applicable law, whichever is lower).
• Payroll deduction is encouraged, but not
  required.

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Results to Date

• 16 Ohio credit unions (and the Ohio League)
  belong to the StretchPay CUSO.
• Over 35 credit unions (from across the nation)
  and seven additional Leagues are considering
  participation.

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Results to Date

• 93,000 in Membership Fees
• 40,000 left in fund from Pilot
• 51,000 fees collected YTD
• 14,000 Losses YTD
• 171,000 in Fund Balance

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To Join the Program

• Step One
• Obtain Approval from your Board of Directors.

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To Join the Program

• Step Two
• Join the CUOSI by signing the membership
  agreements and paying a membership fee.

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The Membership Fee

• CU pays a fee of 25 per 1 million in assets,
  with a maximum fee of 15,000.
• The fee is not an investment in the CUSO, and
  should be expensed on the CUs books.

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To Join the Program

• Step Three
• Adopt a StretchPay Loan Policy and Procedure (a
  model PP will be provided for adoption by your
  credit union).

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To Join the Program

• Step Four
• Set StretchPay up on your Data Processing
  System.

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To Join the Program

• Step Five
• Set up StretchPay Documents (line-of-credit
  app, note, agreement, T-I-L disclosure, closing
  letter and monthly remittance form).

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To Join the Program

• Step Six
• Train employees on the StretchPay Program.

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To Join the Program

• Step Seven
• Set up the Monthly Accounting System for fees
  and loss recovery.

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To Join the Program

• Step Eight
• Set up a Collection Effort Program.

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To Join the Program

• Step Nine
• Market the Program.

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To Join the Program

• Step Ten
• Offer the StretchPay Program to your Members.

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Frequently Asked Questions

• Is a CU required to offer both a 250 and 500
  line of credit?
• No. A CU may offer the 250 credit line, the 500
  credit line, or both.

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Frequently Asked Questions

• Is there a minimum income requirement for a
  member to open a StretchPay line-of-credit?
• Not at this time.

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Frequently Asked Questions

• Is a checking account required to open a
  StretchPay line-of-credit?
• Not system-wide, but each CU has the option of
  having such a requirement.

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Frequently Asked Questions

• How are comments regarding the operation of the
  CUSO, or the StretchPay product, made to the
  CUSO?
• An Advisory Council (made up of all StretchPay
  CUs and some League Reps) will meet regularly by
  conference call to discuss these issues.

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Frequently Asked Questions

• Would I receive help in marketing the program
  to my membership?
• Marketing materials have already been developed
  and will be made available for participating
  credit unions --- CU would only pay printing
  costs and for customization.

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If you are interested . . .

• Contact John Florian at jflorian_at_ohiocul.org to
  receive sample operating and product agreements,
  as well as an implementation guide that includes
  a program overview.

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Contact Information for Doug Fecher . . .

• Doug Fecher, President/CEO
• Wright-Patt Credit Union
• dfecher_at_wpcu.coop
• 937-912-7394