|Credit Union :||St. Louis Community|
|Address :||3651 Forsest Park | St Louis, MO 63108|
|Open / Closed End :||Open|
Loan Underwriting Qualifications :
- Must have a checking account in good standing which has been open for at least 90 days
- “Good standing” means no negative activity for past 90 days
- Deposits into account should average approximately $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 is $500
- No credit check
- Annual fee ranges from $25 to $55
- Automatic transfer of payment for member convenience
- Balance is amortized over 90-180 days
- Each Freedom Loan advance requires a 10% deposit into a restricted access savings account at the credit union to build a savings balance and help avoid future borrowing
- Financial counseling available and encouraged at no additional charge
The Freedom Loan is designed to help members break free from traditional payday lenders who take advantage of their immediate need and should be used for unforeseen or emergency expenses only. Other types of loans are available at the credit union which are less expensive.
Applications are accepted for the Freedom Loan at any of the St. Louis Community Credit Union offices.
Rates, Fees, and Terms :
- Loan is an open-ended, line-of-credit
- Rates and fees vary depending on the repayment term
- Direct deposit is required for all but one Freedom Loan
- With direct deposit the following rates and fees apply:
- 90 day repayment term the APR is 25% and the annual fee is $25
- 120 day repayment term the APR is 23% and the annual fee is $35
- 150 day repayment term the APR is 21% and the annual fee is $45
- 180 day repayment term the APR is 19% and the annual fee is $55
- Without direct deposit the following rate and fee apply:
- 90 day repayment term the APR is 27% and the annual fee is $40
- With a Freedom Checking Account and direct deposit the following rate and fee apply:
- 90 day repayment term the APR is 27% and the annual fee is $50
- Ten percent of each loan advance is manually deposited into a restricted savings account until the loan is paid in full
- Free financial counseling is encouraged, but not required
Target Market :
- Those members who may be using traditional payday lenders
- Those members with financial emergencies who need a short-term cash loan quickly
- 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
Program Results/Statistics :
- Of the credit union’s 36,000 members with checking accounts, 3,723 (over 10%) have a Freedom Loan line of credit
- As of April 2013, Freedom Loan balances totaled $1,674,000 or an average of $449 per borrower
- Net yield on the portfolio has ranged from 8-12%
- Historical delinquency ratios range from 6-10%
Additional Information :
St. Louis Community Credit union believes that we all face times in our lives when money is tight and we need cash to tide us over until the next payday. In these moments, the credit union offers their members a “payday” loan alternative with the Freedom Loan.
When unforeseen financial emergencies arise, the last thing a member needs is to be taken advantage of by a lender who is motivated by profit, not the member’s well-being. St. Louis Community Credit Union doesn’t charge outrageous rates or fees. Plus, a portion of the loan advance is put into a mandatory savings account at the credit union to help the member get back on their financial track.
St. Louis Community CU is very pleased with the acceptance and usage of the Freedom Loan line of credit. Steve Dilley, VP of Lending, notes the forced savings component is making a positive impact. The aim is to help members start saving for the next financial emergency. At times, he says, borrowers are apt to pay the loan off, withdraw the amount from the savings account and 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 members, 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 14-16% for this loan compared to an overall loss ratio of 1% for all loans, Dilley 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. “When a member is more than two days past due, we stop any over the counter transactions,” says Dilley. 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 Freedom Loan line of credit is revoked and the member receives a 2nd Right to Cure letter.
Annual fees are automatically withdrawn from members’ checking accounts, states Dilley. Letters are sent to members informing them of the upcoming charge giving them the option to close the loan account. Dilley 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 Freedom Loan is a great alternative to using payday lenders,” concludes Dilley. “It offers our members cash for unforeseen needs at very reasonable rates and fees, yet is a sustainable product for the credit union.”