• Must have a checking account in good standing that has been open for at least 90 days
• Good standing” means no negative activity for past 90 days
• Deposits into account should average about $400 a month
• No credit check

• Must be a current member of St Louis Community Credit Union
• Must have a checking account in good standing that has been open for at least 90 days
• Maximum loan amount: $500
• No credit check
• Annual fee of $25 – $40
• Automatic transfer of payment for your convenience
• 90-day maximum term
• Each Freedom Loan advance requires a 10% deposit into a restricted access savings account at the Credit Union to help you avoid borrowing in the future
• Financial counseling available and encouraged at no additional charge

A Freedom Loan should be used for unforeseen or emergency expenses only. Other types of loans available at the Credit Union are less expensive.

Break free from traditional payday lenders who take advantage of your need. To apply for a Freedom Loan, visit the St. Louis Community Credit Union office nearest you.

• Loan is an open-end Line-of-credit • With direct deposit, rate is 25% and annual fee is $25 • Without direct deposit, rate is 27% and annual fee is $40 • Maximum loan amount is $500 • Maximum loan term is 90 days • 10% of each loan advance is deposited into a restricted savings account until the loan is paid in full • Free financial counseling is encouraged, but not required

Vendors/Systems/Technology Used:

No special technology required. The 10% of each advance is manually deposited into the restrictive savings account.

• Those who may be using traditional payday lenders
• Those with financial emergencies who need a short-term cash loan quickly

Member Benefits:

• Without direct deposit, members are paying $33.75 in interest for a $500 loan for 90 days + $40 annual fee, or $73.75
• With direct deposit, members are paying $31.25 in interest for a $500 loan for 90 days + $25 annual fee, or $56.25
• An average rate for a traditional payday lender in Missouri is $20/$100 borrowed for 14 days. A $500 loan for 90 days would cost the borrower $643.
• Members are saving between $586.75 to $569.25 for a 90-day Freedom loan

• Of the CU’s 14,000 members with checking accounts, 1,375 (over 9%) have a Freedom LOC
• As of December 2009, Freedom loan balances totaled $648,000, or an average of $471 per borrower
• YTD interest income for the product was $110,000, or a gross yield of 26%
• YTD fee income is approximately $37,000
• Charge offs for 2009 are approximately 11% of the Freedom loan portfolio
• Delinquency ranges from 4-7%

St. Louis Community CU is very pleased with the acceptance and usage of its Freedom LOC. Leonard Riley, VP of lending, notes the forced savings component isn’t working as effectively as he would like to see. The aim is to help people start saving for the next financial emergency. Instead, he says, borrowers are apt to pay the loan off, withdraw the amount in savings, then borrow again. Still, he says, the credit union doesn’t plan to make changes to the program. “We will continue to use the savings component in hopes that for some people, it will stick and suddenly they will have a savings balance to use for a future need, instead of relying on a loan.”

Even with the higher loss ratio of 11% for this loan compared to an overall loss ratio of 1% for all loans, Riley says the Freedom loan yields a net profit for the credit union. Some of the risk is mitigated by requiring an active checking account with no negative activity for 90 days. Many members also take advantage of direct deposit, if available, which decreases their interest rate and annual fee, and reduces delinquency and losses. If a member pays the loan off with a personal check from another financial institution, a hold is placed on the check to ensure it will clear.

“When a member is more than two days past due, we stop any over the counter transactions,” says Riley. Checks and debit transactions will continue to clear the member’s account and the member can access funds through an ATM, but any other activity stops until the loan account is current. Delinquent members receive a first call at 15 days and again at 25 days. At 30 days the LOC is revoked and the member receives a 2nd Right to Cure letter.

Annual fees are automatically withdrawn from members’ checking accounts, states Riley. Letters are sent to members informing them of the upcoming charge giving them the option to close the loan account. Riley also points out that when growth of the loan portfolio peaks, the credit union will send letters to its regular checking members marketing the Freedom loan. The loan is not available to those members using the credit union’s Freedom checking, a 2nd chance checking product.

“The Freedom loan is a great alternative to using payday lenders,” concludes Riley. “It offers our members cash for unforeseen needs at very reasonable rates and fees, yet is a sustainable product for the credit union.”