"The goal of the new program is to get consumers on the right track to financial health through responsible products that enhance positive financial behavior and build assets," she said.

"Our goal in participating in 'Borrow and Save' is to turn people into savers, so that they don't need to borrow when an emergency expense pops up in the future," said Audia Williams, CEO at Union Settlement FCU. "It's a common misconception that low-income people can't save, and through this product we hope to offer a much-needed product that also incentivizes positive behavior and shows our members that they can save." 

Even in the earliest stages, the new product is making a difference in the community. "I was so glad to have the credit union here to help me with an emergency when my electric bill went to collection," commented Raphael, a Union Settlement FCU member who declined to give his last name. "Now, I have some money in my savings, and I know that when the loan is paid I will get a bonus payment, too." 

Stern reported that Union Settlement has already made 16 of the loans for $10,500 with $1,500 put into savings.

Raphael's observation about the bonus payment is crucial, Stern explained, because it is part of the CU's effort to overcome the bias against loans linked to savings.

Programs meant to replace high-cost, low-balance short- terms loans with loans that required a savings contribution have been controversial with some borrowers who believed they needed the full value the loan amount immediately. Some credit unions that started offering loans with a savings component reported that the component was actually an impediment.

Stern acknowledged that the National Federation was aware of the potential obstacle but hoped that a mixture of things like the bonus for paying off the loan and other measures, combined with better marketing, would be enough to convince ambivalent borrowers to take the loans and build the savings.

"Union Settlement has the bonus," Stern said, "and I believe at least one other credit union is matching savings contribution, and other CUs are taking other measures to get the word out about the loans," she said.

The underlying point of the program is to prove that lower income households can save if they have a reliable source of help for when a sudden financial difficulty arises, the federation explained. Too often financial stability is lost for something that can cost less than $1,000 to change, poverty experts have observed.

The federation explained that a typical $500 small dollar loan at the participating CDCUs requires no collateral, no credit report, is processed within 24 hours or less, has an interest rate of 18%, a fee of $20, and a term of 90 days. By contrast short-term loans from a typical pawn shop, loan shark or Internet payday lender have fees and interest equal to $15 per $100 borrowed every 14 days, the organization argued. "The net result is that the CDCU payday alternative costs the borrower $40, while the payday lenders' short-term loan ends up costing consumers $450." 

Stern also pointed out that the Borrow and Save products also provide a financial foundation as well as the loan with debt counseling and financial literacy as a way to help borrowers become more financially secure.