Published March 2004

Credit union gets
into payday lending
to spur change

By Bryan Corliss
Herald Business Writer

The Everett branch of the Washington State Employees Credit Union is part of a pilot project to move the organization into the payday loan business.

The program, called Q-Cash, has raised some eyebrows in the financial service industry, where payday lending is viewed with some distaste, said Kevin Foster-Keddie, president of the Olympia-based organization.

“We get that reaction a lot,” he said.

But the goal is to reduce the number of credit union members who are relying on the short-term, high-interest loans to make ends meet, he said. “We think we can really change the way payday lending is done and set a new standard for how it’s done right.”

The credit union launched the experiment in January at five branches in Everett, Tacoma, Lakewood, Spokane and Chehalis. So far, the service is available only to WSECU members. The goal is to expand it to all 19 branches, offer the service on contract to other credit unions and expand it to nonmembers within the next six months, Foster-Keddie said.

The credit union is one of a handful — fewer than a half-dozen — nationwide to have entered into the payday loan business, he said. The experiment got its start when a teller took note of the surprisingly high number of customers asking for cashiers checks made out to payday lenders, Foster-Keddie said.

Payday loan customers typically use the service as a lender of last resort, taking out loans of several hundred dollars to pay off bills that will come due before they receive their next paycheck. But to get this quick cash, they pay fees that average 15 percent of the loan amount, Foster-Keddie said, and more if they can’t pay off the loan when it comes due in 30 days.

The credit union began researching the subject, and determined that its customers have borrowed nearly $6 million from payday lenders and paid $900,000 to them in interest.

The credit union’s Q-Cash program charges a lower fee — 10 percent of the loan amount, up to $700 — and allows borrowers to pay the loans back in two installments over 30 days.

But most importantly, repeat borrowers will get referred to a credit-counseling program to help them manage their finances so that they don’t need the payday loans, Foster-Keddie said.

“We can get these people off of payday lending,” he said. “We just want to get them in the door and start talking to them.”

Since the first of the year, the credit union has made more than 160 Q-Cash loans — 16 at the Everett branch.

The motives aren’t totally altruistic. Payday lending is the fastest-growing segment of the financial services industry, and the move allows the credit union to compete.

But Foster-Keddie says the credit union makes more money with mortgages and credit cards. Helping members get their finances in order so that they can qualify for those services is good for business. So is the customer loyalty the credit union can build by helping people solve their financial problems.

“People love you when you do that,” he said.

But there is a chance for the not-for-profit credit union to do good while doing well, Foster-Keddie said. It plans to review its spending on Q-Cash after a few months in hopes of driving the fee down to the break-even point, he said. He hopes the competition will be forced to follow, and to start offering the same services the credit union does.

“We’re going to get in the game to try to change it,” Foster-Keddie said. “That’s going to be the measure of success.”

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