The economy is doing well, unemployment is down, and you may be wondering how the payday lending lifestyle is still an issue. Let me provide some perspective. When I search “payday loans around me” in Google at one of our offices in Janesville, Wisconsin, FIFTEEN different payday lenders appear. And, when we searched our ACH files to find members that were making payments to these lenders, we were shocked at how many are in this cycle.
This starts slow and spirals quickly. One of our members got behind because of a $200 car repair and took out her first payday loan. She thought she could catch up quickly, but then her daughter used her cellphone and ran up the bill, so she took out another one, so her phone wouldn’t be shut off. Then, her electric bill was double what it normally is because the air conditioning has been running with the summer heat. Then, it was her friend’s birthday and she couldn’t admit that she didn’t have the money to celebrate that night. So, one payday loan became several payday loans and now on payday, her checking account dwindles within hours as she makes all the payments while juggling to pay for necessities, like rent and groceries. She was stuck.
We identified this member’s situation as we combed through our ACH files and we reached out to her to see if we could help. It has been life-changing for her, but we had to ask ourselves, “As a member, why didn’t she reach out to us first?”As I have been researching payday loans and check cashing services, I challenge myself to answer this question and others. Why don’t these folks trust us? Why are the fees at a payday lender or check cashing service provider more attractive? Wouldn’t members prefer to avoid the stigma of those places?My research shows that it comes down to transparency and the environment. I realized that we haven’t been making it “easy” for our members from all walks of life and all income levels to do business with us and feel comfortable at the same time. I made four big changes at my credit union to be more inclusive.
- Our service fees are now prominently displayed in our test branch.
- We dropped our minimum ATM withdrawal amount to $5.
- Our underwriting model has been altered to understand the member’s story versus trying to fit people into parameters.
- We updated our financial and budgeting tools to fit our everyday member.
I’ve learned that taking on a different perspective during this project is crucial. Helping our members is impossible without taking a step back and putting myself in their shoes. Here’s why these four changes are important to our credit union and our members:
- Understanding service fees is imperative to someone who has limited funds. They want to know how much it costs to do business with us and we had it buried in a Fee Schedule while payday lenders display it prominently, like a menu board. Knowledge is power and now members can make the most out of the money they have.
- People are using alternative means to get to their money because of minimum withdrawal requirements at ATMs. Some folks cannot wait until they have $20 to have access to their cash. This change has been live for about a week and we are averaging one transaction a day under $20 and 1,000 total transactions utilizing the $5 increment.
- When it comes to folks with different pasts and limited funds, we cannot hold them to the typical underwriting model. Using a newly developed underwriting checklist, we can now ask and focus on the story, the member, and making a quality decision.
- We are not the first to offer budget counseling or have budget tools for our members to use. But, we excel at providing an interview process that allows the member to feel comfortable talking about a very sensitive topic and we altered our tools to be realistic for everyday folks, so they can leave feeling confident and with a new sense of hope.
I am continuing to develop additional changes, including a small dollar loan product with a savings option and will keep you posted.
In the meantime, take a minute to see how payday lending affects your community. Search “payday loans around me” and comment below on how many are in your area. Thanks for your support tackling this important initiative.