LONG BEACH, Calif. – Southern California Postal Credit Union is using a payday loan product as an opportunity to build financial security for members, despite the service's traditionally negative reputation. The $65 million, 4,000-member CU realized a need for this type of service when branch staff reported members were regularly cashing and depositing checks from payday lenders. "We knew they were going elsewhere, and we wondered, can we offer a better rate for them?" said Ken Peterson, Member and Lending Services Manager. First, Peterson did a little research and made a shocking discovery: his field of membership – postal employees and their families in four counties: Los Angeles, Orange, San Bernardino and Riverside – fit the typical profile of a payday borrower. While many assume payday borrowers are sporadically employed, if employed at all, that's not the case. In fact, they often have steady jobs like government postal workers. And, nearly half are homeowners. The only difference, Peterson said, is that payday borrowers run into problems in between paychecks occasionally, but often have no permanent solution to prevent them from using payday loans now or in the future. "When we see members who are taking the loan more than once or twice, we see that as an opportunity to sit down with them and find a long-term fix . perhaps using their auto as collateral, or even a home equity loan," Peterson said. "We try to use the loan as an educational tool to help them long term, so they're not just living paycheck to paycheck." SCPCU will loan a member from $100 to $500, in $50 increments. The maximum term is 30 days. There is a $15 application fee, and 20% APR. Although 20% seems high for credit union financing, it's a steal compared to traditional payday lenders. Peterson said his research revealed that the average payday loan charges at least 300% APR. Studies by consumer groups support his findings. According to a study on Internet-based payday lenders released November 30, 2004 by the Consumer Federation of America, the most frequent rate charged for online payday loans is $25 per $100, or about 300% APR if the loan is repaid in 30 days. SCPCU members save $54 in finance charges when financing $300 through the credit union, compared to a for-profit payday lender. Surprisingly, the program doesn't require much time or staffing, and losses have been minimal. Like traditional payday lenders, the credit union requires direct deposit with the credit union or another institution in an amount equal to, or greater than, the loan. The member can arrange for an electronic transfer on payday, or provide a post-dated check upon approval. While the credit union funds 40 to 50 payday loans a month, only four have been charged off to date, after nearly a year of offering the service. Each day, an employee spends five to 10 minutes processing payoffs, and each new loan only requires 10 to 15 minutes to process. The credit union has not received criticism from regulators, either. "We've been audited since we started the program, and there haven't been any problems," Peterson said. "There's such a controversy now with payday loans and courtesy pay," Peterson reasoned, "and we opted for payday loans because we're not charging $25 per check. If I can service them with a low rate and $15 fee up front and it covers, say, six checks they have out, it's a better service," he said.