Payday Loans Altnernatives
Payday Loans Alternatives
This page contains technical details of successful Michigan products for lenders interested in developing a payday lending alternative. To add information, use this form. If you are an individual looking for alternatives you can use, view the payday lending help page.
For credit unions: the 2010 NCUA Final Rule, Part 701 allows credit unions to establish Short Term Small (STS) Loan products with a maximum interest rate of 28%, despite the 18% credit union interest cap.
“MyPay Today” – Detroit, Highland Park, Hamtramck
This product has been available since about 2010. During 2014, 1,600 (15%) of CACU’s members used MyPay Today, collectively taking 14,026 draws at $500 each. This is below the average annual draw rate reported by the CFPB in terms of people who use payday lenders (7.8 for MyPay Today versus 10.7 for payday loans).
The loss ratio on MyPay Today is 15%; however, use of an annual fee ensures that the credit union is able to cover these write offs and the cost of staff time and still make a net profit.
This Payday Alternative Product is designed for members that require short term financial assistance. The ultimate goal is to educate the members on financial management, and eliminate or drastically reduce member dependency on predatory payday lenders. The interest rate for this product is not based on credit score.
- $500 line of credit with a one year draw period. The member must take a full advance. Partial advances are not allowed.
- $70 annual fee collected prior to the initial advance. The fee may be taken from the initial advance (leaving $430 for the member).
- 18% interest rate.
- 60 day repayment term. 50% of the outstanding balance must be paid within the first 30 days. A $29 late fee applies if the member does not make that payment in time.
- Outstanding balance must be paid in full prior to any additional advance.
- ATM, Home Banking and Tel-A-Phone Teller advances are not allowed.
- Minimum 18 years of age at time of application.
- Minimum 90 days as a credit union member.
- Minimum of $1,000 verifiable monthly net income for the initial advance and any subsequent advance.
- Minimum 90 days of employment. Direct deposit is preferred, with auto transfer or payroll deduction.
- Must provide 2 complete references with full name, address and phone number.
- Be in good standing with the credit union at the time of application and when requesting any subsequent advance. No currently delinquent accounts and has not caused any loss to the credit union.
- Must not be in the process of filing for any chapter of bankruptcy or enrolled in a debt management program.
- If the line is cancelled for any reason, the member must reapply and the $70 annual fee is required.
Read More: MyPay Today Cost-Benefit Analysis
“CASE Cash” – Mid Michigan
CASE Cash is intended to provide members with a lower-cost option to meet short-term cash needs and reduce dependency on high-cost payday loans. Financial counseling is required after the member makes 3 draws or 3 delinquencies. This is provided to assist the member to determine where they are falling short on their budget or if they may qualify for a line of credit.
- $200 – $600 loan amount
- Application fee: $30
- Interest rate: 16%
- 60 day repayment term with 2 scheduled monthly payments
- Up to 12 draws per year allowed
- Free financial counseling (required after 3 CASE Cash advances or 3 delinquent payments)
- Be at least 18 years of age.
- Been a member of the credit union for at least 90 days.
- Provide pay stubs or other income verification for the previous 30 days.
- Apply in person at a branch location.
- All other CASE Credit Union loans must be current with no collection action pending. Accounts must not be in the negative and any prior advances must be paid in full.
“Borrow & Save” – Mid Michigan
CASE Credit Union is currently developing a new loan called Borrow & Save. This loan is specifically designed for low to moderate income credit union members who need to rebuild their credit. Members will not be required to bring cash to the table to get this loan.
Employee Resource Network
These loans are made possible through partnerships between a nonprofit, employers and credit unions.
In this case, the nonprofit West Michigan TEAM acts as the fiscal agent for Employee Resource Networks (ERNs), which are groups of 8-10 local employers that have decided to create a joint venture to support employees. For example, two ERNs started day care centers, three started transportation programs to help employees get to work and every ERN has a small loan program.
West Michigan TEAM helps provide a Success Coach – usually from Department of Human Services – to each company. The Success Coach is on site at every ERN member company for a certain period of time each week, and their purpose is to help employees. Employees can meet with their Success Coach to discuss work or life issues. Because the Success Coach is outside of the company and able to keep employee confidentiality, they are able to ask questions the company’s HR department couldn’t (due to liability) in order to get to the root cause of an employee’s problem.
The Success Coach refers employees that need small loans to a specially developed loan program at a local credit union. This is a loan program only accessible to employees at ERN member companies. For example, the Success Coach in Grand Rapids can refer employees to AAC Credit Union so they can get a Bridge Loan & Savings Plan. The Bridge Loan & Savings Plan has been operating since February of 2012, loaning out more than $250,000 with less than a 2% loss rate.
- Up to $1,000 loan.
- Long term repayment plan, usually 6 – 12 months.
- $10-20 extra on each 2-week payment is added to a required, automatic savings account. After the loan is paid off, the member has access to this built up savings account of $240-$520.
- Must be referred by a Success Coach.
- Must have been working at the employer for at least 1 year.
- Must be in good standing with employer; no history of performance or attendance issues.
- Credit score is not a factor. The good standing with the employer is used in place of that.
- Must complete a budget worksheet with the Success Coach and, if needed, adjust spending habits to be able to afford the loan.
So far, the HR directors of every ERN in Michigan have identified payday lending as a problem affecting their workers. As a result, every ERN in Michigan has a small loan program through a local financial institution. The product varies from place to place, as each bank or credit union worked in partnership with the ERN to make something that fits local needs.
Ludington: West Shore Bank
West Michigan: AAC Credit Union
Kalamazoo: KALSEE Credit Union
Battle Creek: OMNI Credit Union
Saginaw: Team One Credit Union and Wanigas Credit Union
Flint: (Launch In Progress)