NCUA Webinar: Small Dollar Lending (4/16/2014)

Kathryn Baxter: Good afternoon, everyone. Welcome to another installment of our monthly
webinar series. My name is Kathryn Baxter. I’m going to be your moderator for today’s session in conjunction with Diane Rector but before we get started I’m going to give you a few administrative announcements so that you can
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presentation. As I mentioned earlier, this is a series of monthly webcasts. Today we’re going to talk about Small Dollar Loan Programs and our lead speaker today is Tom Penna. Tom is going to introduce the rest of his cast today and then
as we go further into the webcast Diane Rector will take the com. She is our training manager for the Office of Small Credit Union Initiatives. So without further delay I’m going to turn the console over to Tom Penna. Tom Penna: Thank you, Kathryn. I’d like to introduce
you to the participants in today’s webinar. We have Cindy Johnson from the Office of Examination and Insurance; Kerri Donald, a Region III NCUA Examiner; Katia Nunez – she’s the CEO of St. Francis Federal Credit Union Jennifer Lovett, the CEO of Mississippi DHS Federal
Credit Union, and Vickie Hastings, CEO of Greenwood Municipal Federal Credit Union. The objective today is to discuss Small Dollar Loan Programs and their regulations and hear from basically it’s to have you consider offering
an alternative loan program compared to payday lending and title loan companies as right for your members. We will discuss the difference between the payday loans and NCUA’s payday loan alternative. We will discuss the regulations affecting these programs and hear
from the three credit union managers, outlining their programs for you and the benefits they receive as well as the members. You may hear us refer to the Payday Alternative Loans Program that NCUA offers and the Short-Term Small Amount Loan Program called an STS interchangeably throughout the presentation.
The webinar is for all credit unions, state and federal. Some of the presentation addressing parts of the NCUA payday lending alternatives programs may only be applicable to federal credit unions because of interest rate limitations; otherwise, you will find the webinar content can
help all credit unions save their members money while finding another way to increase your bottom line. Before we begin, let’s find out who’s on the call today. Will you please complete the first poll question; it is what is your credit union’s asset
size? And we’ll give you a few seconds to do that. And the results are – nope, not yet; okay – and the results are the majority are from the $10 million to $15 million category with 34% coming from credit unions
over $50 million and about 4% are credit unions less than $1 million. That’s a pretty good distribution. Who grants small dollar loans? While banks and credit unions may offer small dollar loans, we are not the big players. The
reason operations specialize in payday loans are they benefit from offering convenient services even though they charge very high fees for the funds borrowed. Borrowers take the small dollar loans out for several reasons. First, it’s because
they’re quick and easy to get; if you have a job, you can qualify for the loan. Other reasons are they help pay for expenses that are unexpected. They also help cash flow shortfalls when a bill comes due before the income comes in. Sometimes a
borrower’s bills are more than what their income is currently. Some borrowers even use them for small planned purchases while others look at it as a cheaper way to borrow than paying an overdraft fee on a checking account or a late fee on a credit card payment. Unfortunately, this is where
the problem lies; they generally cannot come up with the full payment when due so loans must then be rolled over into subsequent loans and more fees incurred. What is a payday loan? Okay, a payday loan is a $40 billion industry
making small balance short-term unsecured loans. Based on our information from our December call report, I found there are 453 credit unions reporting 59,000 loans with a total balance outstanding
of $21.5 million. Thus you can see there’s a lot of opportunities for credit unions to make more loans to members if it’s a $40 billion industry and we’re only making $21 million. The payday lender makes applying for a loan very simple. The applicants generally
complete a simple application, provide a paystub as proof of income, and give the retailer a postdated check or a preauthorized debit to their account for the loan payment. The loans requested are small, generally averaging between $350 and $500. The terms for the loans
have maturity limits of 30 days or less with an average around 14 days. The lender expects repayment from the borrower’s next paycheck or another source of income. Ordinarily lenders do not advertise an actual interest rate but they charge a fee schedule based on the amount
borrowed. However, some lenders also charge an interest rate as well, so it’s different in every state you look at. The fees are considered a finance charge and are converted to an annual percentage rate to comply with Truth in Lending regulations. The fees charged generally
range from $10 to $20 per $100 but in some cases they can be much more than that. When you convert the APR for these fees the rates can be in excess of 300% and could be as much as more than 1200% interest. One of the advantages
borrowers look at is they rarely look at the annual percentage rate charged; what they look at is what’s the dollar amount going to cost them. A $300 loan will generally cost $45; the borrower needs the money and is
willing to get it at any cost. Some of the concerns that we looked at within these programs are Truth in Lending compliance, high APRs charged to the borrowers, and if sometimes the loans are considered predatory lending
based on typical borrowers using the programs. As a result of the volume of payday loans being written and many of the excessive interest rates and fees charged, regulatory agencies are starting to take a careful approach to regulating and controlling payday
lending. Several states have prohibited payday lending but the Internet providers are finding their ways into these states. If you are a state charter, we also want you to please check with your state regulator for any specific regulations affecting your credit unions. The
military became very concerned with this as well. They saw that a number of payday lenders were opening businesses right outside the gates of the military facilities and members were getting caught up into a constant
rollover of the debt. As they couldn’t make the payments, they would be rolled over into the next loan. As a result, the Department of Defense enacted a number of regulations that restricted small dollar terms for its military
members and their family members. In the statute they adopted protection is limited to three different types of loans that have maturities of less than 91 days. They include the payday loans, the vehicle title loans, and tax refund anticipation
loans. Just quickly I’ll give you some of the restrictions that the military has imposed, which include a 36% APR interest rate cap; they prevent rollovers when the loans come due, in other words, the institution cannot just keep rolling over and charging
additional fees; they prevent the use of postdated checks and ACH debits as well as requiring members to provide a military allotment for the payment, and further they also prevent any prepayment penalties to the military personnel. Soon after the military
made some changes, NCUA followed. The changes were in part due to how some credit unions developed the original payday lending programs or alternative payday lending programs. The original changes in developed programs
produced some unintended exceptions because they exceeded the NCUA statutory 18% limit. The violations occurred because the programs initiated additional fees for the program that were not included in the APR and as a result the
NCUA Board in 2010 issued a new program called Short Term Small Amount Loans, now referred to as the NCUA Payday Alternative Loan Program. I would like to introduce Cindy Johnson, our Program Officer with the National Credit Union’s Office of Examination and Insurance, who will now
provide more guidance on the actual Payday Alternative Loan Program. Cindy Johnson: Thank you, Tom. And again, just to reiterate, if I talk about short term small amount loans or payday alternative loans, I’m referring specifically to NCUA’s program under 701.21(c)(7)(3) and that applies
to federal credit unions only. So just to start out by giving a little background information about the Payday Alternative Loan Program, NCUA issued a Regulatory Alert informing federal credit unions that an amendment to Section 701.21 of the Rules and Regulations
which authorized new guidelines for a short term small amount loan program would take effect on October 25, 2010. The regulation does not prohibit federal credit unions from offering other Small Dollar Loan Programs if the program provides loans in accordance with the interest rate
ceiling of 18%, Regulation Z and all other applicable laws and regulations, and I’ll talk about some of those other programs at the end of my presentation. In order to offer a lower-cost option to predatory payday lending programs, the Payday Alternative Loan Program permits federal credit unions to
charge an interest rate of 1,000 basis points above the maximum interest rate established by the NCUA Board if certain conditions are met. The current APR ceiling is 18%, meaning payday alternative loans may carry an APR of up to 28%. State chartered credit unions are subject to the terms and
conditions in their state’s regulations. So again, I mentioned there are several conditions that need to be met in order to charge that interest rate above 18%. Some of the conditions include having a closed-end loan that fully amortizes by the end of the term;
loan principal cannot be less than $200 or more than $1,000, and maturity may range from one month to six months. Additionally, the federal credit union must establish a minimum length of membership requirement of at least one month. Requiring the borrower to be a member
of the federal credit union for a minimum of a month before receiving a short term small loan will reduce the risk of default. We encourage federal credit unions to evaluate their risk tolerance and set a membership requirement accordingly. So you can certainly decide to set a higher membership requirement than
one month but one month is the minimum amount of time. The federal credit union may charge an application fee to all members applying for a new loan that reflects the actual cost associated with processing the application, but in no case may the application fee exceed $20. Late fees are allowed under this program, but
federal credit unions should establish the term and amount of a short term small loan so that the member can pay back the loan without incurring late fees. The federal credit union must also include in its written lending policy a limit on the aggregate amount of payday alternative loans,
up to a maximum of 20% of net worth. So again, you can set a lower limit but the maximum limit that you can set is 20% of net worth. Continuing with program terms, the federal credit union cannot rollover any payday alternative loan; however, a loan’s term may be extended
up to the maximum six-month term if the federal credit union does not charge any additional fees other than interest or extend any new credit. So for example, if a borrower took out a $300 loan for three months and at some point within those three months was unable to continue making payments,
the federal credit union could extend the term for up to an additional three months, so up to that six-month maximum term. But in doing so, the credit union could not extend any new credit or charge additional fees. A federal credit union may not make more than one payday
alternative loan at a time to a borrower. In addition, a federal credit union cannot make more than three payday alternative loans to any one borrower in a rolling six-month period. So whenever the applicant comes in you need to look back at the previous six months to see how many payday alternative
loans they’ve had in that timeframe, so it’s a rolling six months. The federal credit union must also establish appropriate underwriting standards in its written lending policies to minimize risk, for example, requiring a borrower to provide verification of employment by producing at least two recent paystubs.
If all of the conditions are met that we just talked about in the last few slides, federal credit unions may charge up to 28% on these loans. Just to touch on a few points under the application fee, the application fee can only be the amount needed to recoup actual
costs associated with processing an application, up to a maximum of $20. You’re not required to charge an application fee, some credit unions don’t, but the maximum you can charge is $20 and if the costs to process are lower than that you must charge less than $20, so it just depends
on the actual processing costs. If a federal credit union undertakes a more limited application process with repeat borrowers, there would be no justification for charging the same application fee each time the borrower applied. So again, if there’s less time involved, less processing cost, the fee should
be lower. By charging a fee to all applicants whether or not credit is extended and ensuring the fee only covers the cost to process the application, the application fee is not considered part of the finance charge and is excluded from the APR calculation. Federal credit unions should evaluate member needs and
the cost of processing applications in determining whether to impose an application fee and the amount of such fee. It is interest income and not the application fee that allows federal credit unions to offset the higher degree of risk inherent in these loans. In other words, the application fee cannot be used to offset
potential loan losses or program risk. NCUA will scrutinize application fees to ensure federal credit unions are using the fee to recoup costs associated with processing an application and not to account for the riskier nature of this type of lending. So we’ve talked about the requirements under the regulation;
now to look at some benefits to members. The payday alternative loan option will assist federal credit unions in meeting their mission to promote thrift and meet their members’ credit needs. The major advantage for the member is that loan payments are spread over a period of up to six months instead of
requiring the borrower to come up with the full loan amount within a very short timeframe, often within 14 days. Sometimes the borrower will roll a traditional payday loan over, often multiple times. Under the requirements to amortize a loan, federal credit unions must structure the payments so that the borrower is paying
a portion of the principal and interest in equal or near equal installments on a periodic basis over the course of the loan. Federal credit unions should offer payment schedules that allow borrowers to easily repay the loan within the given term. Members will benefit from smaller payments and partial principal
reduction on each payment. And as we’ve discussed, the 20% APR limit and $20 maximum loan application fee are significantly lower than what borrowers pay for predatory payday lending products. And as we discussed also, federal credit unions offering this program may still charge late
fees. So to take a look at an example of cost savings, the table on this slide shows examples of typical payday loans versus a payday alternative loan. So assuming a $250 payday loan that’s rolled over for six months, which is shown in the middle column,
total payments would equal $1,075. If the member borrows a $250 payday alternative loan for six months from their federal credit union and that’s shown in the right-hand column total installment payments and fees would equal $290.81, saving the member just
under $785. And again, that’s just in a six-month period, so that’s quite significant for most people. Even a typical payday loan that’s not rolled over, the member would still benefit from the reduced monthly payment of $45.13 for the payday alternative
loan compared to $313.46 that would come due in two weeks, which is shown in the far left-hand column. In addition to the benefits to members, there are benefits to federal credit unions offering payday alternative loans. NCUA developed this program to enable federal credit
unions to offer short term small amount loans as a viable alternative to predatory payday loans, which often charge triple-digit APRs. Payday lending products are currently being used by your members elsewhere. According to the Pew Charitable Trust, 12 million American adults use payday
loans annually. On average, a borrower takes out eight loans of $375 each per year and spends $520 on interest and fees. So in total, over the course of the year consumers spend over $40 billion on payday loans and other small dollar loan products, such as deposit advance,
refund anticipation checks, pawn loans, auto title loans and rent to own, just to name a few. As we’ve discussed, you may charge an application fee to cover the actual costs associated with processing an application up to $20. A payday alternative loan program may be
attractive to borrowers who value convenience and want a short term loan only for a small amount. The program may even attract new members to your credit union. When compared to a loan charging and 18% APR, the additional 1,000 basis points in interest increases
income for the credit union by $15.06 on a $500 loan, assuming again a six-month loan. The monthly payment for the borrower would increase from $87.76 to $90.27 so the difference is not great per borrower but, on a pool of $100,000 in loans,
assuming an average loan of $500 and timely repayments, the additional interest for the credit union would exceed $3,000 in six months. NCUA intends for this rule to help borrowers curtail the repetitive use of payday loans and transition them to more mainstream
federal products and more responsible borrowing. Providing borrowers with sufficient access to credit will help them make this transition away from reliance on repetitive and high-cost borrowings. So in addition to the program requirements and the regulation, the
regulation also contains guidance and best practices to ensure a federal credit union’s program remains viable and responsible. Some possible program features to consider include adding a savings component, providing financial education, such as
housing budget assistance or a budget workbook, reporting members’ payments of payday alternative loans to credit bureaus, which will help them build a credit history, or electronic loan transactions. In terms of underwriting best practices, federal credit unions
need to develop minimum underwriting standards that account for a member’s need for quickly available funds while adhering to the principles of responsible lending. One goal of this program is to make it easy for members to apply so that federal credit unions can offer an alternative to payday
loans. Underwriting standards should address required documentation for proof of employment or income, including at least two recent paycheck stubs. Federal credit unions should be able to use a borrower’s proof of recurring income as the key criterion in developing standards for maturity links and loan amounts so a borrower
can manage repayment of the loan. For members with established accounts, federal credit unions should only need to review members’ account records and proof of recurring income or employment. And lastly under best practices is risk avoidance. Federal credit unions need to consider risk avoidance strategies, including requiring
members to participate in direct deposit and conducting a thorough evaluation of the credit union’s resources and ability to engage in a payday alternative loan program. Under risk avoidance we’ve got direct deposit and payroll deduction. NCUA believes a federal credit union is able to evaluate its risk
tolerance and members’ needs to determine whether or not to require members to participate in direct deposit in order to obtain a payday alternative loan. So again, this is a best practice, it’s an option for you but it’s not a requirement under the regulation. As with any
loan, you cannot make payroll deduction mandatory and that’s a Reg E issue. You can, however, offer an incentive, such as a lower rate, to entice the borrower to participate in payroll deduction. Other incentives could include free money orders or traveler’s checks or really any other offer you want to provide to
encourage members to participate in payroll deduction or preauthorized electronic funds transfers. I think the most common one is the lower interest rate; maybe 25 basis points is what I’ve commonly seen. Like direct deposit, NCUA believes payroll deduction is an important tool for federal credit unions to utilize in lowering the risk associated
with payday alternative loans; however, it’s up to each individual federal credit union to decide if they wish to provide an incentive to encourage members to utilize payroll deduction. So again, under Reg E you can’t require it; our regulation doesn’t require federal credit unions to offer an incentive for
payroll deduction but it is a best practice and something to consider as part of your program. Just a brief mention of Department of Defense regulations that Tom discussed earlier. NCUA notes the definition of a payday loan in the Department of Defense regulations would not include
most short term small amount loans made under the PAL rule. Under Military Lending Act rules, covered products such as payday loans may not have a military APR of more than 36% and they may not automatically be refinanced by the lender. The next shows the definition
of a payday loan under the Department of Defense. While all payday alternative loans will be closed-end and less than $2,000 and many will have maturities less than 91 days, the APR limit of 28% falls well under the military’s 36% ceiling. Further,
the NCUA rule does not require a federal credit union to obtain a check or payment instrument or authorization to debit a member’s account concurrent with an extension of credit, nor does NCUA expect credit unions will generally need to do so. Therefore, a federal credit union will typically be able to offer
loans under the terms of the PAL rule to members of the military without violating the DOD regulations. And Tom, I believe we have another poll question. Tom Penna: Yes, Cindy, thank you. In addition to that, for military reference, in the reference tab that Kathryn mentioned earlier, there is a
copy of the military lending checklist that examiners used in the area’s exam program. You’ll find that very helpful in determining and supporting that your short term program will be within compliance of DoD regulations. Now our poll question for this
is do you offer Small Dollar Loan Programs today? Answer yes if you do offer a program with maturities less than 30 days; B is if you offer Small Dollar Loan Program maturities greater than 30 days but less than six months and interest rates of less than
18%; C is we offer small dollar loans less than $1,000 and maturities less than six months and interest rates between 18% and 28%; and D would be no, if you do not offer the small dollar loans; and use the E for if you’re not representing a credit union today. We’ll give you a few seconds for
that. Kathryn Baxter: While we’re waiting for you to answer those questions, please submit your questions now. You can submit them throughout the webinar. Thank you. Tom Penna: Okay and the results are a very small amount actually offer a typical payday-type
lending, less than 30 days, with 62% not offering small dollar lending today. Wow. I think we have some opportunity that you guys can look at and ways to really save your members some money if you’re looking into this program as a
good alternative and, when we look at some of our current earnings at our own credit unions, it may be a very good way to also increase your bottom line. Okay, I’m going to return it back to Cindy for a few more topics and discussion on the small dollar program. Cindy Johnson: Thank you, Tom. So again,
everything else I talked about had to do with NCUA’s regulation for payday alternative loans; now we’re going to look at some other Small Dollar Loan Programs. The payday alternative loan regulation does not prohibit federal credit unions from participating in a closed or open-end
Small Dollar Loan Program that operates successfully and legally under NCUA’s regulations and Regulation Z, so if you currently have an unsecured short-term loan program that charges 18% or less and it doesn’t meet all the requirements we talked about earlier, that’s fine; you don’t
need to stop that program. You just need to make sure you meet all the other lending regulations. This is just an alternative if you wish to charge a higher rate to take into account some of the additional risk. PAL program limitations only apply to short term small amount loans where you exceed
the 18% interest rate ceiling so, again, you are still able to offer other small dollar short term and unsecured loans by charging 18% or less. Federal credit unions may participate in any program that provides loans in accordance with the interest rate ceiling, Regulation Z, all
other applicable laws and regulations, and that operates within safety and soundness guidelines. Remember the payday alternative loan program is currently only for federal credit unions – again, it’s 701.21(c)(7)(3) – so state chartered credit unions must operate within
the guidelines established by your state regulator. And one mention about funds that are available under the Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act includes federal assistance to federally insured financial institutions that provide low cost
small loans to consumers as an alternative to more costly payday loans. Institutions participating in programs under this section of the act are required to promote and provide financial education and literacy to small loan borrowers. Community Development Federal Institutions or CDFIs may apply for
grants from the Community Development Fund to develop and offer these loan programs. These grants enable CDFIs to establish a loan loss reserve to defray the cost of a Small Dollar Loan Program. In addition, technical assistance grants are available for technology, staff support and other costs
associated with establishing a Small Dollar Loan Program. So the requirements of NCUA’s payday alternative loan rule will not prohibit a federal credit union which otherwise is eligible from receiving a grant or participating in a program under the Dodd-Frank Act, but that’s not to say you have to have a payday alternative
loan that meets all the requirements in the regulation. Again, you could have a short term small unsecured loan program that charges 18% or less and still be eligible for some of these other programs. Tom Penna: Thank you, Cindy. I would now like to introduce you to District Examiner Kerri Donald
from NCUA Region llI to give you a perspective on what to expect from your examiner when they review this type of loan program. Kerri Donald: Thanks, Tom. Now I’d like to answer the question most CEOs and managers ask – what will my examiner want to see? As a District
Examiner, we have the following expectations during an exam if you offer payday alternative loans to your membership. First, an adequate Board-approved policy or procedure should accompany all products and services that a credit union offers to the membership. For payday
alternative loans examiners expect to review a policy that includes all of the requirements listed in Section 701.21 of NCUA Rules and Regulations. We will review your procedure to ensure proper underwriting standards are established and are being followed. Next we normally request a sample of loan files to
ensure all required documentation is collected from the member and that the loan terms are within the regulation. In addition, we will ensure that loans are being made in a way that provides the member with the best chance to successfully repay the loan. During our loan review we will verify charged application
fees are used only to recoup application processing costs and not to account for the riskier nature of this type of lending. The credit union’s Board of Directors should establish a lending cap for the payday alternative loans program in relation to net worth. The regulation includes a maximum aggregate
dollar limit of 20% of net worth. We recommend management and the Board should determine an appropriate limit based on experience and available resources to manage, monitor and track the portfolio. A few sample questions you can ask yourself to get ready for your next exam: Are you periodically
evaluating the success of your program? Are you incurring unreasonable and unaffordable loan losses? Are loan losses exceeding your expectations or adversely affecting the credit union’s net worth position? Answer to questions like these will assist in showing what modifications you may need
to make to your program to secure the program’s viability. So in conclusion, focus on your written policy and procedures, underwriting guidelines, program limitations, a proper fee structure and monitoring techniques. In addition, examiners also follow guidance outlined in
Supervisory Letters that identify the differences experienced in examining low income and community development credit unions. We also use the actual Regulation Section 701.21, Regulatory Alert 10 RA 13, and Letter to Credit Unions 05-CU-01 to
determine compliance with these programs. These references are also listed on Slide 54 towards the end of the PowerPoint. Next I would like to talk about the call report. NCUA also monitors the activity in this special program. We request that
credit unions that grant payday alternative loans to report it properly on the call report. The call report instructions use the term short term small amount loans or STS loans interchangeably with payday alternative loans or PALs. These loans are reported on
Pages 2, 7 and 9. Remember, though, that only federally chartered credit unions are allowed to offer the payday alternative loans with the 28% APR. These loans will be reported in the STS Loan category. State chartered credit unions that offer a similar loan
product should report the balances in the All Other Unsecured Loans and Lines Of Credit category. Going to Page 7 and 9, for federal chartered credit unions you’ll report the number and dollar amount of delinquent payday alternative loans by the appropriate number of days delinquent in the
STS Loan category. On Page 9 you will report the dollar amount of payday alternative loans charged off and recovered year to date. For state-charted credit unions, for your similar loan products on Page 7 and 9 you will report the loans balances in the All Other Loan category. Also,
please note that if you do offer the payday alternative loans product you should logon to your CU online profile and mark Short Term Small Amount Loans on the Program of Services tab. Tom Penna: Thank you, Kerri. Cindy, we have one question for you
and I. If a federal credit union offers a small loan program but has kept the interest rate under 18%, do we want them to report this on the call report in the special areas of the STS loans? Cindy Johnson: We do not at this time. We want them only to report
the loans that are over 18% and meet all of the other requirements of the Short Term Small Amount Loan Program. Tom Penna: Okay, thank you. Getting started, let’s quickly just go summarize a little bit as to make sure that when you’re establishing a
program, whether state or federal, please ensure the Board approves a sound, safe policy establishing all the terms and conditions. You need to really evaluate the potential impact that can have on both you and your members, positively and
negatively, and also positively and negatively in how it meets your business plan. The risk avoidance side is think about how you can maximize the opportunity to receive your payments on a timely basis. We encourage payroll deductions
as one of the best alternatives to keep the cash flow coming in. Establish a sound collection program when developing the program and monitor your results on a regular basis. One thing that you need to do or should do is be able to
report to the Board of Directors how many loans you’ve made in a year, how many loans have – what’s the total balance of loans made, what your delinquency experience has been and your charge-offs. You want to be able to evaluate whether the program is successful or not.
I would also encourage you to do it since inception to be able to show your members how much you’ve been able to save them over the life expectancy of the program. I’d like to now introduce the three CEOs that are going to give us their
perspectives. In other words, we mention the program; they’re living the program. Let’s start first with Jennifer Lovett from Mississippi DHS. Jennifer, will you please give us a little bit of background on your credit union and the Small Dollar Loan
Program? Jennifer Lovett: Thanks, Tom. We’re a $7.7 million federal credit union serving a single SEG group. Our net worth’s around 15.5% of assets. We offer a no-credit-check $750 six-month loan at 28% interest with a $20 nonrefundable application fee. The borrower must be a
member for at least 60 days prior to the loan application, they must provide proof that they’ve been employed for at least six months, and we also require that 10% of the loan proceeds be put on reserve until the loan is paid in full. We report the payment practices monthly to the credit bureau to get the members’ positive
credit information for paying their loans time, and of course if delinquent that’s reported as well. Tom Penna: Will you please tell us how your application underwriting procedures work and like who qualifies for the loans and what records they submit? Jennifer Lovett: The application must be completely filled out and signed. Before we process a
loan application we run their Social Security number through Pacer; that’s the online bankruptcy database. If we determine that they’re currently in bankruptcy we deny the application until the bankruptcy is discharged or they have their trustee send us a motion to incur debt. Anyone who’s been a member for 60 days with at least six months of
employment qualifies. Tom Penna: Did you establish a collection program along with this program? Jennifer Lovett: We use the same collection program as with any of our other loans as they become delinquent. We move a little bit faster on the court judgment process considering that the loan term on this loan is only six
months. Tom Penna: Are you currently offering your members any financial counseling? Jennifer Lovett: Currently we’re not offering any formal financial counseling, just your general sit down and talk if we feel that it’s necessary, but no formal counseling. Tom Penna: Now what does your Board think of the program?
Jennifer Lovett: The Board understands that it produces a considerable amount of income and they also understand as well that the income from this loan outweighs the risk attached to it. Tom Penna: What do your members think of the program? Jennifer Lovett: They love it. Tom Penna: And what about your examiners?
Have they made any exception to the program? Jennifer Lovett: They’ve never had any exceptions other than that it’s performing well with our membership. Tom Penna: Okay. So would you say you have a successful program? Jennifer Lovett: Yes, I would
say I have a successful program. At the end of 2013 we did 1,160 loans to our members. Our loan total at the end of December was 585 loans for a total balance of $262,500. We run about a 4% delinquency
rate with this program but at the end of December we only had 10 delinquent loans for a total of $2,764, which was only 1% delinquency. Our net charge-offs for 2013 was $6,805. We consider this low for the
product based on the income that was earned and our net yield after charge-offs is about $80,000 for 2013. Tom Penna: Has it helped you make more loans to the members? Jennifer Lovett: We’ve been able to do signature loans,
special loans like back to school and Christmas loans. We have cross sold on some car loans as well, but usually we’re just meeting an immediate need. Tom Penna: But if you don’t get a credit report how do you know if they need these other products, the other
loans? Jennifer Lovett: Well, we like to know our member. We like to know what they need and what they want so during the application process we’re asking questions, just trying to get an idea, establish a relationship. Tom Penna: So the interview process is very important? Jennifer
Lovett: Yes, very. Tom Penna: And have these members offered you any referrals of new members or family members? Jennifer Lovett: Absolutely. Tom Penna: Okay. And did you experience any problems along the way in developing the program? Jennifer Lovett: Yes. When I was hired with the credit
union this particular product had been suspended and when I started 90% of our call volume was asking when they were going to reinstate the loan. My only advice would be don’t ever stop and start this loan; it created chaos with our credit union. Once I reinstated the loan we booked
500 loans in two months and I have one loan officer, so that ought to tell you something. And I would highly encourage the 10% reserve after doing a little research on charge-offs. That 10% helps in recovering some delinquencies. Tom Penna: Okay. One final question
– what advice would you give someone considering the program or not? Jennifer Lovett: The main advice is to know your member, know their needs and their wants. You can tell a lot about someone by just evaluating their checking account history. And especially if they’ve fallen prey
to payday lenders, it’s very apparent with their checking account. And keep in mind this is a no credit check loan so you definitely need to have a backup plan as far as getting your logon information for Pacer so you can run to see if they’re in bankruptcy. We’ve been caught
in a trap to where we weren’t running Pacers and members were currently in Chapter 13 bankruptcies and we gave them a loan, didn’t know it, and the trustee found out and we had to send them all the money back and then we had to charge off the total loan
balance. If you have the ability to get payroll deduction, encourage your member to do so. You can’t require them but you can definitely encourage them as a convenience. And if you originate ACH, definitely encourage bank drafts as a convenience; that’s the main thing. Tom Penna:
All right. Thank you, Jennifer. One last point I want to also bring to your attention. Jennifer has agreed to give you her email address in the event you have any questions for her after the presentation. She can be reached at Jennifer
Lovett – L O V E T T – at Mississippi DHS Federal Credit Union and her email is [email protected] com. Correct, Jen? Jennifer Lovett: That’s correct. Thanks, Tom. Tom Penna: All right. Thank you for your help.
And I now would like to turn it over to Kerri, who’s going to introduce the next CEO. Kerri Donald: Thanks, Tom. Now I’d like to introduce to you Vickie Hastings, CEO of Greenwood Municipal Federal Credit Union. Vickie, could you please tell us a little bit
about your credit union? Vickie Hastings: Sure. We are approximately $34.9 million in assets and we’re located in Greenwood, South Carolina. Our field of membership is a multiple common bond primarily in federal, state and local government. Kerri Donald: Will you please
describe your Small Dollar Loan Program? Vickie Hastings: I will. Kerri, we call our short-term loan program Cash in a Flash. It’s a personal loan and we offer the program to our membership as an option to the payday and cash advance lending.
Our program includes the requirements that are listed in NCUA Rules and Reg Section 701.21; however, the restrictions are slightly different. Our maximum loan is $500. To receive the maximum of $500 a member must have two years of continuous
employment with current or last employer. If an employee has only one year of continuous employment, the maximum loan amount is $300. The minimum loan amount remains at $200 per the regulations. Our APR is 28% and we
offer this loan up to six months. Additional restrictions that the Board of Directors have placed on the program, applicants must have and use one additional service other than our regular savings account.
Direct deposit or payroll deduction is strongly encouraged and, as Jennifer said, it’s not required but it is encouraged. After the loan is paid another loan cannot be granted for 90 days after the previous loan has been paid in full,
and all accounts with Greenwood Municipal must be in good standing for 90 days. Kerri Donald: How do you feel that your program is performing? Vickie Hastings: I feel like it’s doing very well. At the end of December
we had on our books at that time about 460 loans with total outstanding balances of $143,964. We had granted a total of 452 loans with outstanding balances of
$137,638 by the end of this March and our charge off for last year on this particular loan have been for 2013 $5,295; 2012, $4,575.
Kerri Donald: So Vickie, do you normally deny any loan applicant? Vickie Hastings: We do and that just comes under our policy with them having another service. If not in good
standing, if they have a checking account that has a negative balance or they’ve had more than three NSFs in the past 90 days, we do deny them the loan and we do try to counsel them on how to maintain a positive account. Kerri Donald: Okay. I’m sure there
are many credit union managers listening that would like to start this type of program. What advice would you give to other credit union managers before starting a program like this? Vickie Hastings: Probably the biggest advice or the biggest piece of
advice is just to move slowly into the program. Determine what works for the individual credit union because needs are very different. Make changes as needed; if you develop a policy and you see that something’s not working then tweak your policy
a little bit. And always – and this is what we do – use this loan as an opportunity to offer other services or loans. What we’ve found is that members that are obtaining these loans are not always high risk; they just want the convenience of quick
money. Kerri Donald: That sounds like good advice. To everyone listening, previously Vickie agreed to assist listeners with the program or possibly policy questions. She agreed to give you here email
address. That’s going to be vhastings – which is V-H-A-S-T-I-N-G-S – @gm-scu. org. Thank you, Vickie. Vickie Hastings: You’re welcome. Kerri Donald: Now we have Katia Nunez, the CEO of St. Francis
Federal Credit Union, to tell us about their program. Katia, will you first give us some background information on your credit union? Katia Marini-Nunez: Sure, Kerri. Thank you. We are approximately $7.5 million in assets and we are located in Greenville, South Carolina. Our
field of membership is a multiple common bond, primary in health care. We implemented our short term small loan program in November 2012 and we call the loans under this program STS Quick Cash. Kathryn Baxter: Can you speak up just a little bit because your volume is kind of low, please? Katia
Marini-Nunez: Sure. Sorry. Do I need to repeat it? Kathryn Baxter: Yes, please. Katia Marini-Nunez: Sure. We are approximately $7.5 million in assets and are located in Greenville, South Carolina. Our field of membership is a multiple common bond, primarily in health
care. We implemented our short term small loan program in November 2012 and we call the loans under this program STS Quick Cash. Kerri Donald: So can you explain your STS Quick Cash loan product? Katia Marini-Nunez: Yes, Kerri. Our program follows all the
requirements set by NCUA Rules and Regulation Section 701-21. We also implemented the recommended best practices under the regulation, which is require from applicants proof of income, encourage payroll deduction by offering a 3% rate reduction for those that do sign up for payroll deduction,
provide financial education to the applicant, and require a saving component. And the way the saving component works is by setting up a subaccount in which funds are held until the loan is paid in full and after that the member can receive their funds, and that is to teach them that saving
a little very pay period or every month, it does add up at the end. And it can help them get out of the cycle, always borrowing to make it to the next paycheck. In the event of a charge-off or delinquency beyond the 30 days, we use the funds held in that account to be applied
toward the loan to reduce our losses. The saving component is equal to 50% of the payment so, for example, a $500 loan with a six month term and a 25% APR will require a payment of $90. In addition, we require an additional $45 for the savings component, for a
monthly payment of $135. At the end of the repayment period the member will have $270. Our members seem to love it. Some of them even forget the savings component so they are very happy when we tell them they have money available. And in some instances our members have
decided to leave the money in savings for a rainy day, so that has encouraged better saving habits. Also the Board has required additional sets of requirements such as steady employment for at least six months with the current employer or within the same industry;
two references, which must be obtained and verified prior to the loan approval; a maximum loan amount not to exceed 50% of the applicant’s monthly gross income. We don’t do any loan advances or extension; we don’t pull a credit report but we do
report their repayment history to the credit bureau. And we require them to don’t advance or don’t request another loan within 30 days, so they have to wait at least 30 days before they can ask for another short term loan. Kerri Donald: Okay, so do you feel that your program is
successful? Katia Marini-Nunez: Yes. We started with virtually no advertisement because we wanted to be cautious about it but since inception, which was late in November 2012, through the end of last year, December 31, 2013, we granted 98 loans with a total balance of $53,159, we only
charged off one of these loans for $385, and we made a profit only in income – that doesn’t include the fee – of $2,200. Now that our cautious phase is over the Board feels comfortable to move forward and we will start promoting this program as a way to
avoid or stop payday lending and loan sharks from taking advantage of our members. Kerri Donald: So Katia, do you have any advice for other credit unions that may want to implement a similar loan product? Katia Marini-Nunez: Sure. My advice is to really understand the needs and wants of your membership
and create a product that meets your member where they are but also is designed to educate them and promote healthier financial habits, such as assisting members with budgeting and showing them the value of continuous savings. I report to my Board monthly the performance on this particular loan product in itself
and in specific the yield is very important. Like I said, fortunately we didn’t have a lot of losses but they can adapt quickly and make the program not worth having if you don’t keep an eye on it so I strongly suggest keeping a close eye, at least monthly, on this particular program.
And for St. Francis the key is to never say no so as long as the applicant is within the guidelines that we set up and they didn’t cause a loss to the credit union we will always grant a loan, this kind of loan, the STS. And I have a success story that is my favorite one about a member that came in expecting to get the
full $1,000 the first time he borrowed or he requested to borrow and that was because his coworker told him that they were able to receive that much without a credit check. So we explained to the member the requirements involved with being qualified for the loan and then the fact that, since he had never borrowed from us before, we wouldn’t be
able to start with $1,000; we would start with a lower amount and then, as he paid back and did other loans in the future, we could build up to the $1,000 so that he could build a relationship with us. Initially he was very resistant to the idea and each time his payment was due he would try not to pay the savings component but then, with
much counseling, he finally learned the value of the program. Unfortunately what happened to him is he lost his job a couple of months ago and he became 30 days past due; however, he called us two weeks ago and said that he found another job, that he wants to start direct deposit, and since then he has started direct deposit.
And his comment was you guys have been so good to me, I want to be good to you. So that experience in itself for me is worth more than the interest income that we earn in this program; knowing that we’re living the credit union mission of people helping people is my greatest reward. But don’t get me wrong; the
income is good, too. And then also we use this particular program to identify members that feel like their credit is so bad that they will never get a car loan or they will never get a good rate on a car loan. My favorite story on this one or my brag story is this one member that
we were able to take out from a title financing company with a 300% APR, bring the loan over to us for an 18% APR, we cut his payment to less than half and his repayment time to less than half. So he was thrilled; we were thrilled to be able to help him. And the philosophy is that if a person has
made at least six consecutive on time payments to the company that charges high interest and the payment is often higher than what our payment will be, then there shouldn’t be any problem for that member to be able to pay our smaller payment. And then when we mention payroll deduction and they don’t have to worry about making the payment because
it will happen on its own, they like it even better. Kerri Donald: That’s two great examples. Thank you, Katia. I bet members love the feeling of paying a loan off and then having money in a savings account. Katia Marini-Nunez: Yes, they really love that. Kerri Donald: Katia also
agreed to help those who are listening today. You can reach her at her email address. It’s [email protected] org for any other questions. Thank you, Katia. Katia Marini-Nunez:
You’re welcome. Tom Penna: Thank you, Kerri. It’s also important to recognize that NCUA’s Small Dollar Loan Program is not the only program out there. Please refer to your league affiliates, your CUNA
association, your NAFU and your other organizations that you may be members of to get additional information as well as your state regulator themselves. I also want to just remind you of the Reference tab once again, the blue tab. It’s a number of
the documents we used to present this presentation. I also want to emphasize in there is a reference to a Guide to Small Dollar Credit Lending by the Center for Financial Service Innovation. It was just
completed in I believe March of 2014. It gives a good reference in how to evaluate what a high quality small dollar loan would be. In wrap up, our goal was to identify ways to help you save your
members money and build relationships with new members. The PAL programs or short term small dollar lending programs offered can give members a more affordable loan option as compared to going to the retail predatory
payday-type lenders. We’d like you to reach out to your members by offering the quick convenience of the loan products and education your members about different loan options to decrease the interest rates they may have to pay
with the other lenders and benefit from you. And now I would like to turn it over to Diane Rector, Supervisory Manager of the Office of Credit Union Initiatives. Diane Rector: Thanks, Tom. We’re getting ready to open up the floor for questions from our audience but
before we do that I want to let you know about some upcoming events. Mark your calendars; on May 21 at 2:00 p. m. Eastern Time we’re going to have a webinar on How to Be in Compliance with OFAC and FinCEN. OFAC and FinCEN will be our guest speakers at the Part 1 and after that you’ll
be able to answer poll questions and answer approximately 12 to 15 questions for a certificate like we did with the BSA last month. Again, on June 11th at 2:00 p. m. we’re going to have Cybersecurity Awareness. On June 25th at 2:00 p. m. we’re going to have Part II of How to be in
Compliance with OFAC and FinCEN. We also have some training events coming up. Mark your calendars; June 7th we’re going to have a Leadership Boot Camp in Baton Rouge, Louisiana and in Los Angeles, California. We’re pushing out the survey to
you now. Kathryn Baxter: Okay and we’re going to begin our Q&A. We had some questions and answers that came in earlier so what we’re going to do, we’re going to entertain those for our panel and so
the first question that we’re going to ask – one second – the first question we’re going to ask has to do with – here we go – this comes from a Board member from a small credit union and they do small dollar lending for equipment
such as riding lawnmowers, garden tractors and so forth, and they want to know how these items can be secured as collateral without a title, like with vehicles. So they’re looking for ways to provide a lower interest to their members without unsecured
loans. So who would like to answer that question? Jennifer Lovett: I can. Jennifer from Mississippi DHS Federal Credit Union. In my experience with like tractors and lawn mowers and things and such, I know here in the state of
Mississippi you can file a UCC code on those types of equipment. Kathryn Baxter: Okay, fantastic. We have another question that came in. This has to do with the fees associated with the loans. Normally interest is how we would generate income,
the credit union says. Is it compliant to charge a flat fee? And they gave an example. They said, for example, $20 per thousand. Who would like to answer that question? Cindy Johnson: I can, Kathryn. Again, for the payday alternative loan program – well and
actually all loans under Reg Z it’s really based on your loan processing costs. So if you could show that there are higher processing costs associated with a higher dollar volume loan you might be able to implement something like that, but it’s really based
on the cost of processing the application. Kathryn Baxter: Thank you, Cindy. Tom Penna: In addition to that, though, that would only be if it’s not the payday Small Dollar Loan Program because that program has a $20 limitation. So if it’s a longer-term loan or one
following the 18% interested rate limitations and a normal consumer-type loan, that would be permissible as long as you support the cost. Kathryn Baxter: Thank you, Tom. Question 20 is going to go to Katia. Question 20 says what do you mean by adding
a savings component? Katia Marini-Nunez: Sure. As I explained, we open a special suffix account to where the member that receives the loan doesn’t have access to but every time their payment is due they have to make their normal loan payment plus 50% of that payment and
that additional savings payment component will be put in the special savings on hold. Once the loan is completely paid in full the member will have access to that savings. And basically it’s to try to explain to people that if you save a little every pay period or every month, you don’t realize how quick
it adds up. And after the six months, like in the example I gave, the payment is $90 a month and they pay an additional $45. They will have $270 saved within the six months. So in a year it is $520; they can have a nice Christmas or they can pay a bill that
was unexpected, car taxes. So it’s to show them, to teach them the habit of save a little every time you get paid. Kathryn Baxter: Thanks, Katia. Katia Marini-Nunez: You’re welcome. Kathryn Baxter: The next question, Number 36, goes to you. If we start a payday loan alternative program
and elect to charge a $20 application fee, would we also charge an application fee for say auto loans or could we just limit the fees to just payday loan alternative loans? Katia Marini-Nunez: Here at St. Francis we only charge for the short term small loans. That’s the only loan that gets the fee. It’s a
flat $20 on the amount requested and it has to be charged upfront because we cannot charge it only if somebody gets approved; otherwise it becomes actually part of the APR calculation. So when somebody decides to apply for that kind of loan we let them know this type of loan, there’s no credit check
but you do have to pay the $20 and if you don’t get it for whatever reason, you don’t get the $20 back. But, I mean, there’s nothing that says that you cannot charge another loan, like auto loans or anything. We just never have in the past so we decided to leave it to see just for this particular
product because of the cost of making the loan and preparing the paperwork and everything versus the longevity of the loan. Kathryn Baxter: Okay. Thank you, Katia. The next question is going to be Question Number 15 and that’s going to go to Diane Rector. Here’s the question: Are all the loans called payday
alternatives? Can they be called small dollar loans? That’s part of the question. The second part of the question says if the repayment is up to six months then it really isn’t tied to a paycheck, as the name implies. The name has negative connotations in the marketplace. Diane Rector: Thanks, Kathryn.
PALs – P-A-L-S – is the name NCUA uses for the loans written under its regulation. This regulation also has been called STS. The regulation encourages federal credit unions to compete with payday lenders without exposing their members to predatory practices. For example, the two-week term
and frequent rollovers of payday loans lead to excessive charges. Thank you. Kathryn Baxter: Okay. Thank you, Diane. The next question is going to go to Cindy. Cindy, this is Question Number 68. Here it is – are there any laws that prevent payroll deduction? That’s Part 1. I have a small dollar loan in
my incubator that partners credit unions with employers. We highly encourage payroll deduction. Some credit unions think that it is not legal to do that; they say it cannot. Cindy Johnson: As I discussed, requiring payroll deduction as part of the extension of credit is not allowed
under Regulation E but you can provide incentives for payroll deduction. So again, you could give a lower loan rate, you could provide free services that otherwise the credit union charges for, things like to that to encourage payroll deduction, but it cannot be required under Reg E.
Kathryn Baxter: All right. Thank you, Cindy. The next question goes to Katia, 67. The question is do you pull credit reports at all for PAL loans? Katia Marini-Nunez: We don’t. We feel that most of the people that will request that type of loan will probably have pretty bad credit to begin with, so to prevent us from being
judgmental in any kind of way – because that’s not the whole point of credit unions period but it’s definitely not the point of that particular program – it’s much easier to stick to the guidelines that the Board and the regulation stipulates and just be fair to everybody and don’t get any tainted or any temptation to do anything
because we saw their credit. But on the other hand we do report as they pay every month, which helps them to get a credit score if they didn’t have one or improve their credit score if they had a bad one, and then we talk to them about okay, we’re not pulling a credit report for this loan but if you have a vehicle that you’ve
been paying on or anything, you can apply for a car and we’ll help you. So we try to let them know that even though they may feel they have bad credit that may not necessarily be a reason for us to turn down a different kind of loan. So we try to help them. Kathryn Baxter: Number 16 goes to Cindy.
When you refer to rollover, do you mean that if a member wants to get a new loan near the end of the loan the first loan has to be closed out and start a new loan? Cindy Johnson: The prohibition against rollovers really relates to situations where
the borrower is charged an additional fee for extending or re borrowing funds to avoid delinquency. So in the situation described, yes, the member really needs to pay off the existing loan before a new loan begins unless you’re just extending the term up to six months. But you also
need to consider the prohibition or the limitation against more than three payday alternative loans in a six month period so if you’re closing one out and reopening another one, you do need to look back at the rolling six-month period as well. Kathryn Baxter: Okay. Thank you, Cindy. We have a question for Jennifer; she’s
feeling kind of lonely so we have a question for you, Jennifer, Question Number 21. And here’s the question; it says most credit unions make some loans already to members with marginal credit. What is a best practice to differentiate between members who would qualify for conventional loans versus PAL loans?
Jennifer Lovett: Well, I think you have to take the component of the qualifying for a conventional loan out of the question because a predatory lending loan which it’s not predatory lending – but our no credit-check loan is a no-credit-check loan
and our members are getting these loans because essentially they’re embarrassed of what their credit looks like and they don’t even have any clue of what it looks like, they just think that their credit is bad so they have to get a no-credit-check loan. But necessarily
I think that’s where the relationship comes in; you need to have that relationship with your member. You need to ask questions when they think they need a small no credit check loan over a conventional loan and I would encourage financial counseling or
set up things like I’ve set up soft pulls for credit reports in the event a member is too terrified to get a loan we can evaluate their credit without them getting a negative hit against them through the
credit report pull. But I don’t really think, you know, we’re credit unions; we don’t need to differentiate between conventional and no-credit-check loans. We should want our member to be able to get all loans and I think
that that loan is a stepping block to bigger and better things for them. Kathryn Baxter: Thank you. Vickie, can the borrower be required – Number 13- can the borrower be required to pay the application fee prior to the application being
processed and a decision made to approve or decline? Vickie Hastings: Well, we do not charge an application fee but, if I remember the regulation, if you charge at all then it needs to be charged whether they’re denied or approved.
Tom Penna: That’s correct, Vickie. That’s the advantage or the purpose of the regulation for this program. As long as you charge the application fee to all members, it is not considered part of the finance charge when you’re
doing your APR. Vickie Hastings: We just haven’t implemented an application fee. Kathryn Baxter: Okay. For all of our speakers while you’re online, please don’t answer the questions online; we’re going to entertain the questions live. Diane is going to ask Question
Number 113. Diane Rector: 113. Are any of the credit unions in the presentation charging an application fee? If so, what are you charging and how did you determine the cost to process your short term loan program? Katia Marini-Nunez: I can answer that if you want me to. This is Katia
from St. Francis. We charge a $20 fee and the way we calculated that cost, of course, that’s the maximum that is allowed but the way we calculated that cost is we pay our loan officers plus the paperwork and we call members and everything, so it takes about
maybe an hour, an hour and a half, to process one. So the $20 is fair between, like I said, the paperwork required and the time, so it would be the wage for that particular loan officer to run the loan. Kathryn Baxter: All right, the next question is Question Number
18. It goes to Cindy. Cindy, here’s the question: If a member gets a new loan immediately after the first loan is paid, can we charge the associated fees again? Cindy Johnson: Well, again, there’s a few considerations for this. If you’re doing less application processing for repeat borrowers because you’ve
already gathered some of that information previously, the fee really should be lower. So yes, you could charge a fee but it might need to be a lower fee. If you’re doing the same processing for everybody no matter how many times they’ve had payday alternative loans with you, then you could charge the same application fee.
Kathryn Baxter: Okay, stay on the line, Cindy; we have another question for you, Question Number 25. Requiring direct deposit is not a Reg E issue is the question, I believe, or is it? Cindy Johnson: Again, requiring payroll deduction is not allowed under Reg E. Requiring direct deposit is not a Reg E
issue; that’s up to the individual credit unions to decide if they want to require that. The difference is direct deposit, the person’s check is coming right into the credit union; they’re not getting a paper check in the mail and you’re not taking those funds and applying them to the loan, that’s payroll deduction. So direct deposit
is just the person’s check coming in and that can be required as part of the loan. But it’s not a requirement under our regulation; it’s an option for the credit union. Kathryn Baxter: The next question is going to be for all of our speakers. It’s
Question Number 118 and here’s how the question reads – as soon as I find it – what APR did each of the credit unions charge on these loans, the three speakers that we have online? Jennifer Lovett: This is Jennifer Lovett at Mississippi
DHS Federal Credit Union. I charge 28%, which is the max that’s allowed by NCUA. Katia Marini-Nunez: This is Katia at St. Francis. We charge 28% without payroll deduction and 25% if they sign up for payroll deduction as an incentive. Vickie Hastings: This is Vickie
with Greenwood Municipal and we charge 28%. Kathryn Baxter: Okay, thank you. We’re going to entertain one more question and that question is for all of our speakers, Question Number 35. Does anyone look at debt ratios? Katia Marini-Nunez: I can answer
that. This is Katia at St. Francis. We don’t look at debt to income ratios. The only thing that we look at is the gross monthly earnings so that we can determine not to give them more than 50%. So if somebody makes $1,500 gross a month, the most we will
lend them is $750. But we don’t do the debt-to-income. Jennifer Lovett: This is Jennifer at Mississippi DHS Federal Credit Union. The only time that we look at debt-to-income ratio is when a member applies for more than one loan. Like if they apply for our
signature loan and the $750- well, we call it a $750 loan here – the no credit check loan, we’ll process the signature loan because we get to pull a credit report and evaluate their debt-to-income then and if their debt-to-income doesn’t follow our guidelines then we will decline them
for the no credit-check loan, but that’s the only time that we do that. Vickie Hastings: This is Vickie at Greenwood Municipal and we do not look at debt to income. Kathryn Baxter: Great. We’re going to wrap this up with in one more minute or less can each of the speakers tell us how you market
your program, starting with Mississippi DHS Federal Credit Union. Jennifer Lovett: Our marketing is word of mouth and in our quarterly newsletter. Kathryn Baxter: Thank you. Next? Katia Marini-Nunez: I can answer if you want to, Katia from St. Francis. We did
no marketing; it was all word of mouth. But this year we will begin putting in our quarterly newsletter an article explaining what predatory lending is, what payday lending is, how costly it can be, how you don’t realize what you sign up for a lot of
times, and what we offer to help them. Vickie Hastings: This is Vickie at Greenwood Municipal and our marketing is word of mouth; we have not advertised in any other way. Kathryn Baxter: Okay. Thank you, guests. Before we end the call several
individuals asked for us to repeat the email addresses and I’m getting ready to do that right now if you have your pen and pencil ready. For Jennifer Lovett it’s
[email protected] com. That’s Jennifer’s. Vickie’s is [email protected] fcu. org. It’s either a dash or underscore. Vickie
Hastings: It is a dash. Kathryn Baxter: Dash; it’s a dash for Vickie. Katia is
[email protected] org. And that will wrap it up for this afternoon. We thank all of our speakers and our invited audience,
and don’t forget to join us next month, May 21st, for our webinar with OFAC and FinCEN at 2:00 p. m. Don’t forget it’s 2:00 p. m. Eastern. Until then,
we’ll see you later. Have a great afternoon.

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