Written by Nancy Pierce
Real Solutions Field Coach
The payday lending industry has enjoyed exponential growth over the last 12 years. Estimates of payday loan volume range from $28 billion to over $40 billion per year. That’s a lot of loans when the average loan amount is $300 and the term is typically for 14 to 30 days. Costs are very high, yet the industry reports 20 million customers. The profile of a payday loan borrower suggests an individual who is capable of making rational decisions, yet chooses to do business with a payday lender instead of a credit union, for whatever reason.
Are our credit union members using payday loans? YES! Somewhere between 10 percent and 20 percent of credit union members opt to do at least some of their business with payday lenders. Why? Perhaps it’s fear of being turned down, knowing they may have credit issues. Perhaps the credit union’s hours and location aren’t convenient when the member needs the loan. But more likely, it’s because the credit union doesn’t have the right product—a small, short-term cash loan that can be accessed quickly and conveniently.
Why have credit unions shied away from payday-like loans? Perhaps credit unions fear offering such loans paints them with the same brush stroke as a payday lender, and that’s an unsettling feeling. But credit unions are beginning to realize they need to be a part of the solution and cannot ignore what it is costing their members to do business with payday lenders. Credit unions can offer a better-valued product that is both empowering for their members and sustainable for the credit union.