Nationwide Payday CUSO Being Pursued; Concept Involves Sharing Risk Among Many CUs

FAIRBORN, Ohio – With support from the Ohio Credit Union League and Filene Research Institute, an Ohio credit union is pushing the idea of a nationwide CUSO to bundle payday loans and share in the risk by pooling fees. If successful, the proposed nonprofit CUSO, being pursued by the $1 billion Wright-Patt CU and to be headquartered in Ohio, would enlist CUs across the U.S and eventually serve as a springboard for wider CU-branded programs on financial education to be advertised nationally. Wright-Patt is basing plans for the payday CUSO on a now three-year-old pooled program it administers for 10 western Ohio CUs in which CUs direct collected fees to a segregated account at Wrigh-Patt. Under the proposed CUSO, the collected fees would be funneled to a central fund, and if a loan is charged off, the CU would apply to the fund for reimbursement of 90% of the losses. “If a credit union eventually collects on the loan, they must return these funds to the pooled funds of the CUSO,” explained Jeff Carpenter, vice president of cooperative development at Wright-Patt. Since 2003, the current fund balance on the segregated accounts at Wright-Patt has grown to more than $50,000, said Carpenter adding the balance “means that the annual fees have exceeded the losses by this amount.” Wright-Patt has been offering an 18% payday product called “Stretch Pay,” a 30-day line of credit loan at either $250 accompanied by a minimum $35 fee.

There is no underwriting except that a borrower must have been a member for 90 days, have verifiable income, and a checking account in good standing, said Carpenter. The annual line of credit fees jumps to $70 for loans above $500 and in order to take an additional advance on Stretch Pay, the member must pay the balance in full. So far Wright-Patt said it has made 20,000 advances during the three years with the loan portfolio exceeding $6 million. Under the proposed CUSO, Stretch Pay would be the common moniker for the product and based on national CU participation the name would be marketed as the industry’s payday alternative. “The idea might be to develop joint advertising on a local basis promoting the idea of encouraging people to stop by their credit unions as the source for the short-term loans and other services,” said Douglas Fecher, president/CEO of Wright-Patt, who has spearheaded the concept in the Ohio League and later with Filene and other state leagues. Both Michigan and Maryland/D.C. leagues, he said, have shown interest in the concept, as has Filene through its Real Solutions program aimed at serving the underserved, which also focuses on payday loans and financial education. “Right now we’re in the final stages of setting up the CUSO,” said Fecher, forecasting legal paperwork would be completed “with a formal structure in the next 90 days.” Local Dayton attorneys have been collaborating with the Ohio League in working on the CUSO plan, said Wright-Patt officials. “I’d be happy if we got 25-30 credit union participants in a year,” declared Fecher. Under the proposed CUSO agreement, participating CUs, including the 10 primarily in the Dayton-Columbus-Cincinnati markets, would have to change the name of their payday product to Stretch Pay, said Carpenter. Tracing the history of Stretch Pay, Fecher said he became interested in the plight of payday borrowers in his community four years ago during a meeting of the Dayton City Council on the payday problem when one of the commissioners expressed dismay at his inability to get a short-term loan at a local CU. “That sort of opened my eyes to the problem and what we could do,” said Fecher. As compared to a plethora of payday shops in the market, “I knew as credit unions we did not have the footprint to match that penetration,” he said. But later in meetings with other CU executives he helped conceive the idea of a shared pact. The CUSO idea was moved along further last year and in January in Ohio League meetings with officials of Filene and the Michigan/Maryland/D.C leagues, he said.