The Report On Payday Loan Alternative Models For Institutions Interested In Offering Them
Case studies contained in the report include revolving and fixed loan options, with varied repayment terms, loan limits and support services. A unique feature of the NCSECU program is a requirement that users save 5 percent of any money borrowed. This mandatory savings component—after being in effect for 18 months—has generated savings in excess of $6 million. NCSECU officials hope the program will help their members accumulate sufficient savings to end their reliance on short-term credit. The mandatory savings feature is extremely popular with NCSECU members, many of whom have never had savings.
Another model identified in the report is the Citibank Checking Plus program. This is also a revolving line of credit linked to a customer’s checking account, offered at a 17 percent APR. Citibank offers this as a low-cost alternative to fee-based bounce protection. However, we believe the product could also be used by LMI families to meet short-term emergency cash needs. Citibank has started making a $500 line of credit under the program widely available to checking account customers in good standing for six months. This effort could be easily replicated by other institutions to provide additional small dollar credit options to the LMI community.
We conclude that depository institutions are able to profitably offer payday loan alternatives. Whether they have the will to do remains to be seen. Regulators and other government officials will need to publicly encourage cash payday loan alternatives for such products to be offered more broadly by banks and credit unions.
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