Six Credit Unions Get Grants For Payday Loan Product Development

NEW YORK – Beginning early in 2005, six credit unions in five states will begin to use grants provided by JPMorgan Chase & Co. and the National Federation of Community Development Credit Unions to develop payday loan alternative products. The total grants equal $225,000 and the NFCDCU hopes they will help develop products that other credit unions can adapt to their own particular memberships, according to NFCDCU Executive Director Clifford Rosenthal. The six credit unions are the $195 million ASI Federal Credit Union, headquartered in Harahan, Louisiana ($25,000); the $7.5 million Bethex FCU, headquartered in Bronx, N.Y (25,000); the $9 million Faith Community United CU, headquartered in Cleveland, Ohio ($50,000); the $12 million Lower East Side FCU, headquartered in New York ($50,000); the $8 million Northeast Community FCU, the $8.1 Mission Area FCU, and the $3.5 billion Patelco CU, both headquartered in the San Francisco area (50,000); and the $1.2 million South Side Community, headquartered in Chicago ($50,000). The three credit unions headquartered in San Francisco have formed a consortium to jumpstart financial activity and services among the most underserved populations in San Francisco. The consortium intends to refine Northeast’s “Grace Loan” program and extend it to Visitacion Valley, Excelsior and Bayview-Hunters Point. Studies have shown that these two linguistically and culturally diverse areas are especially at risk to payday lenders. The three credit unions will reach out to these communities by creating a CUSO and through a satellite branch office and field offices in the target communities, JP Morgan said. The wide variety of different products that the credit unions will try to develop with the grants illustrates the difficulty many CUs have had trying to both offer something they believe their members need without losing too much money doing it. ASI’s product will opt for trying to change member behavior while seeking to help them with needed cash. The credit union will introduce consolidation loans to help members pay off debts of up to $1,000 that are owed to predatory lenders. Borrowers will have up to 18 months to pay back these low-interest loans, at a fixed APR of only 10%. ASI will also help their members build assets while paying off their loans with its new APPLE program. A portion of each APPLE loan payment will be placed in a new savings account, to help the member through future emergencies. Borrowers also will be asked to pledge not to borrow funds from any payday or predatory lenders for the duration of their APPLE loan. But Faith Community United will use its grant to seek to expand what has already proved to be a popular and successful program. Faith Community United will work to try to ease the requirements for its payday alternative loans for newer members and increase their loans by 30%. The maximum amount for a loan, which the credit union calls a Grace Loan is $500 in any month, and the credit union requires borrowers to save a minimum of $10 per month and show proof of employment. Faith also encourages new participants to take advantage of their other asset-building programs, including financial literacy and homeownership classes. -