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Stretch Plan

Credit Union :ASI
Assets :$300,700,000
Address :5508 Citrus Blvd. | Harahan, LA 70123
Start Date :1999
Open / Closed End :Open

Loan Underwriting Qualifications :

• Must be 18 years of age • Direct deposit is encouraged, but not required • No credit check is required • Must provide proof of employment for the past 6 months • Cannot have filed bankruptcy within the past 12 months • Cannot have caused a loss to the credit union

Vendors/Systems/Technology Used :

  • No special technology is required.

Rates, Fees, and Terms :

  • A club fee of $4 per week is assessed all Stretch Plan members. In addition to the Stretch Plan loan, members receive the following benefits:
  • Free travelers’ checks
  • Discounted money orders
  • A free checking account (for those who qualify)
  • A loan discount of .25% on most other loans
  • Open end LOC amounts are between $200 and $500
  • Interest rate of 12% APR
  • All borrowers are eligible for free financial counseling through the credit union’s nonprofit affiliate.

Target Market :

The product is designed as an alternative to payday lenders to bring PDL users into a mainstream financial institution and to help them step up into healthier financial products.

Marketing Strategy:

  • Word of mouth works very well
  • Tellers and MSRs are trained to recognize signs that members are using payday lenders and refer them to the Stretch Plan
  • The Stretch Plan is marketed on the CU’s website as one of its “Low-cost alternatives to predatory lending.”

Program Results/Statistics :

  • As of 12/31/09, there were 3,678 active Stretch Plan loans
  • Outstanding portfolio balance for these loans was $672,289
  • Delinquency ratio was 8.82%
  • Charge offs as of year end was 5.62% (This ratio is for losses for all payday lending alternatives offered by ASI)

Member Benefits:

  • PDLs in Louisiana charge between 300% to 600% APR and higher if done via the Internet
  • An average PDL of $300 at 600% for one year would cost a borrower $1,800 in fees and interest
  • An average Stretch Plan loan of $300 would cost a borrower $36 in interest for one year, plus $208 in club fees
  • That represents an annual savings of $1,556 per borrower
  • In addition, there are other discounts that Stretch Plan members receive

Additional Information :

The credit union offers a series of tiers or paths to help members move into healthier financial products, according to Sarah Taylor, Senior VP at ASI. Once a member has successfully demonstrated a solid repayment history through the Stretch Plan, the member can step up to a larger line of credit. “It is ultimately our long-term goal to convert each Stretch Plan into a regular LOC, assuming that the member has a need for some type of ongoing security net,” notes Taylor.

After the Stretch Plan, borrowers can choose between an Asset Builder and Credit Enhancement Plan. While credit is pulled for these loans, Taylor states, “Our normal underwriting criteria, which is generous to begin with, is further relaxed to take into account particular life situations which might impact a person’s credit.” Borrowers’ debt-to-income ratio cannot exceed 50% and they cannot exceed two times their monthly disposable income. The difference between these two programs, notes Taylor, is that the Credit Enhancement Plan is structured with the same benefits and $4 weekly fee as the Stretch Plan and the Asset Builder loan requires a monthly payment of $50 per $1,000 borrowed, plus $15 of each payment is deposited into a “frozen” savings account which earns 5.12% APY. The higher interest rate on savings is the benefit of this program in lieu of the benefits offered through the Credit Enhancement or Stretch Plans. The APR for both loans is 15%.

The credit union offers several other products for low-wealth households, including its Freedom Loan, which is a consolidation loan of payday loans. Taylor points out this loan is structured as a term loan rather than a line of credit and “is designed for a borrower who is seriously ensnared in a treadmill of debt, usually with several payday lenders.” The loan requires credit counseling.

Taylor states, “More than half of our products are targeted towards our low-income membership, which comprises well over 60% of our total membership. The Stretch Plan is our first-tier product to help members with financial emergencies avoid predatory payday lenders.”