What Borrowers Wished Credit Unions Knew

  • Share:
technology

CUTrendScan

They would rather avoid payday lenders—if they could. But many borrowers who are faced with the need for a fast small-dollar short-term loan don’t have many alternatives. And the soaring number of payday lender locations shows just how frequently financially vulnerable community members are turning to payday services to try and stay afloat.

The payday lending industry experienced an explosive growth over the last two decades. The total number of payday lending stores in the United States eclipsed the number of McDonald’s and Starbucks in 2014 and is today a $41 billion industry. Payday lenders offer an attractive solution to those faced with a financial emergency: get cash in hand, regardless of credit, in mere minutes. For about as long as it takes to order a pizza, borrowers can come into a store and receive a loan without a credit check or extensive documentation. However, that instant gratification can come at a high cost. The Consumer Financial Protection Bureau (CFPB) says the average borrower takes out 10 loans each year, often one right after another. CFPB data shows that 70 percent of payday loans are taken out on the same day as a previous loan is repaid.

Payday lenders take advantage of financially vulnerable Americans, especially in rural and minority communities—communities that often already have a credit union present. According to a study in Michigan by the Center for Responsible Lending, payday lenders are strategically placed in communities that are most likely to experience financial shortfalls. The statewide average for payday stores is 5.6 storefronts for every 100,000 people. For communities with a higher population of Latinos, that rises to 6.6 per 100,000. For communities with a higher population of African-Americans, that rises to 7.6 per 100,000. The study also found that rural communities count 7.1 stores per 100,000 people, and communities below 80 percent of a state’s median income have 9.1 stores per 100,000 people.

In 2016 alone, Michigan borrowers lost an estimated $94 million in payday lending fees, with 559 stores statewide. That’s money those borrowers could have used to build an emergency savings fund, pay for car repairs or new clothes for their children without having to take out another loan.

How credit unions can become a better alternative

The majority of consumers (70 percent) believe that payday loans should be more, and better, regulated. Increasingly, borrowers are also clamoring for a more consumer-friendly alternative to traditional financial institutions. According to Pew, eight in ten consumers would prefer small-dollar loans from a bank or credit union over a payday lender, and 92 percent would agree if the loans cost six times less than those of payday lenders.

In the lack of alternatives, be the alternative. Give members a better option.

The advent and dramatic expansion of payday lending in the U.S. is a relatively new phenomenon and should be a wake-up call for credit unions,” said CU Solutions Group President and CEO Dave Adams. “As banks rediscover this lending opportunity, it would be a mistake for credit unions to ignore these trends. Credit unions and their support organizations will need to find creative and disruptive strategies for helping these consumers to make smart banking and borrowing decisions with a complement of financial education.”

CUTrendScan

However, credit unions still have significant challenges when it comes to issuing small-dollar loans. Consumers say that speed, cost, and the certainty of approval are the top factors in choosing where to apply for a loan. For many payday lenders, instant approval is their most attractive feature, despite the staggering cost.

Borrowers also prefer to apply for loans electronically, either through a computer, tablet, or their mobile phone.

CUTrendScan

Risk vs reward for the credit union

As with any new financial product, credit unions have to consider the risks:

When it comes to an automated, online system, two risks credit unions will have to pay careful attention to is the problem of member authentication and underwriting risk. If credit unions are partnering with a fintech firm to create their small-dollar loan solution, they must ensure the fintech has solid member authentication mechanisms that are similar, if not the same, as the mechanisms the credit union already uses for online and mobile banking. In addition, robust underwriting practices reduce the amount of risk the credit union is exposed to for short-term lending, especially as credit unions may wish to look at more than FICO scores.

The first question many credit union leaders will ask is:

Combined, these additional costs may place small-dollar loans out of reach for credit unions that lack the necessary resources.

Fortunately, there are options for credit unions who want to expand their reach without breaking their budget. QCash Financial is one of these alternatives, providing credit unions with an automated, cloud-based, omnichannel lending platform. QCash was created by Washington State Employees Credit Union when the organization discovered a need for a small-dollar loan solution.

Your credit union could learn from their experience:

Using a product like QCash—which was built with credit unions in mind—minimizes the risk and investment of a credit union and has the potential to offer substantial rewards for members and credit unions alike.

  • Share:


« Return to "Trends"
TrendScan logo
<< Back to Articles

Latest Trends

  1. The Member Service Experience
  2. Become a Tax Resource for Members
  3. Should You Still Be Concerned about ADA Website Compliance?
  4. What Is a DDoS Attack and Why Should Credit Unions Be Concerned?
  5. Anticipating Change with a Succession Plan
  6. Don't Get Snagged on ADA Compliance Requirements
  7. The Performance Management Conundrum: Structure vs. Creativity
  8. Experience Company Growth and Discovery with Employee-Driven Communication
  9. The Planning Process - Improved
  10. Building a Website with the User in Mind
  11. Content Marketing: Well Worth the Effort
  12. Your Social Media Accounts Deserve Quality Content
  13. Are You Ready to Adopt a Continuous Performance Management System?
  14. Continuous Performance Management is Disrupting HR
  15. What Credit Unions Should Do with Ambiguous ADA Standards
  16. The Website Audit Your Credit Union Needs
  17. 5 Things Credit Unions Can Learn from Cyber Attacks
  18. Optimizing Websites for Voice: What You Need to Know
  19. The Importance of Creating Quality Content
  20. 3 Succession Plans Your Credit Union Needs
  21. 7 Tax Changes Your Members Need to Know About
  22. Whatís Hot in Performance Management Technology
  23. Americansí Lack of Financial Literacy Is an Opportunity for Credit Unions
  24. Are You Properly Rewarding Your CEO?
  25. Why HR Should Take Advantage of Employee Self Service
  26. Credit Unions Could Replace Predatory Lenders
  27. The Quest for a One-Stop Shop Financial App
  28. Is Your Executive Compensation Still Appealing?
  29. 3 Website Design Trends for 2019
  30. Consumer Appetites in Mobile Innovation
  31. 3 Ways Credit Unions Can Prepare for a Cyber Extortion
  32. Consumer Attitudes Toward Digital Advertising
  33. Build Up Membership Through Supportive Savings Programs
  34. The Credit Union Advantage for the Digital Customer
  35. Wanted: Apps for Clarification and Simplification
  36. People Analytics: Bringing HR and Data Together
  37. Popular DDoS Mitigation Methods in 2019
  38. Volunteer and Young Board Members Need Development
  39. Prioritizing the Credit Union Employee Experience
  40. The Win-Win Results of Prize-Linked Savings for Credit Unions and Members
  41. 3 Key Factors for Creating Good Content
  42. 4 Steps to Increased Social Media ROI
  43. Shifts and Trends to Know About in E-Learning
  44. What the C-Suite Wants out of Social Media
  45. Credit Union Compensation: Philosophy or Strategy?
  46. Is Your CMS the Right Fit?
  47. How Useful Are Member Personas for Credit Union Marketing Teams?
  48. Selling Payments and Wealth Management Services
  49. A Simple Way to Unify Your Marketing Efforts
  50. How Credit Unions Can Formalize the Branding Process
  51. Keeping Up with Digital Lending Convenience
  52. Making Sure You Have the Right Leaders in the Right Seats
  53. Learning Management Systems: What Credit Unions Should Consider
  54. How Credit Unions Can Embrace Storytelling in Marketing
  55. How to Identify What You Want in an ESS
  56. Empowering Employees and HR with the Latest Technology
  57. Credit Unions Can Complete with Shadow Banks
  58. The Dream Team for Successful Online Customer Interactions
  59. How to Generate Content with Fewer Resources
  60. 2 Big FinTech Goals for Credit Unions
  61. Are You Missing Out on the Power of Video?
  62. Are Your Landing Pages up to Snuff?
  63. Do You Know Why Payday Loans Are Used so Much?
  64. If Your Site Isn't Mobile Optimized, You're Losing Out
  65. Protect Your Credit Union with a Website Accessibility Response Plan
  66. What Borrowers Wished Credit Unions Knew
  67. 6 Factors for Choosing the Right ESS System
  68. Caution: Customers Don't Always Ask for What They Want
  69. 5 Guideposts to Measure Your Brand Promise Against
  70. 3 Factors Impacting Credit Union Compensation Plans
  71. Don't Underestimate the Power of Financial Education
  72. Leveraging Social Media for Member Engagement
  73. Underestimate the Onboarding Process at Your Peril
  74. Finding the Best Platform for HR Technology
  75. The Role of HR and Hiring Managers in the Candidate Experience
  76. 3 Brand Promises Credit Unions Can Learn From
  77. Why You Should Invest in an Applicant Tracking System
  78. Don't Undervalue Your Brand Promise
  79. Content, Tools, and Channels to Capture Consumer Attention
  80. The Best Compliance Training with New Topics You Will Need
  81. Just How Distracted Are Consumers?
  82. Preparing a Transparency Communication Plan
  83. Preparing for Compensation Transparency

Related Trends

  1. Credit Unions Could Replace Predatory Lenders
  2. 5 Things Credit Unions Can Learn from Cyber Attacks
  3. Do You Know Why Payday Loans Are Used so Much?
  4. What Borrowers Wished Credit Unions Knew
  5. Should You Still Be Concerned about ADA Website Compliance?
  6. Don't Get Snagged on ADA Compliance Requirements
  7. Consumer Appetites in Mobile Innovation
  8. The Quest for a One-Stop Shop Financial App
  9. Wanted: Apps for Clarification and Simplification
  10. What Credit Unions Should Do with Ambiguous ADA Standards
  11. What Is a DDoS Attack and Why Should Credit Unions Be Concerned?
  12. Building a Website with the User in Mind
  13. 3 Ways Credit Unions Can Prepare for a Cyber Extortion
  14. 3 Website Design Trends for 2019
  15. The Credit Union Advantage for the Digital Customer
  16. Optimizing Websites for Voice: What You Need to Know
  17. Is Your CMS the Right Fit?
  18. 2 Big FinTech Goals for Credit Unions
  19. Caution: Customers Don't Always Ask for What They Want
  20. The Website Audit Your Credit Union Needs
  21. Keeping Up with Digital Lending Convenience
  22. Protect Your Credit Union with a Website Accessibility Response Plan
  23. Credit Unions Can Complete with Shadow Banks
  24. Popular DDoS Mitigation Methods in 2019

Industry insights
to your inbox!

Subscribe