Credit unions put their stamp on payday loan business

Shawn Johnson, a 34-year-old medical technician, is a single father raising two boys, working irregular hours at night and dealing with an ex-wife. But he’s grateful that he doesn’t have to rely on for-profit, payday lenders anymore.

Nevada Federal Credit Union got him off the payday lending tread mill.

Johnson often finds the needs of his sons, ages 3 and 11, outpace his income. They grow out of clothes faster than he can buy them, Johnson said.

“There’s just not enough money to go around,” he said.

He tries to get part-time jobs, but he said it’s difficult because of changing hours at the local hospital where he works.

When he runs short of cash, Nevada Federal will lend him up to $700 for two weeks. The fee is $60 for members with direct deposit of wages and $70 for other members.

The fee runs about half those charged by for-profit pay day lenders, said Greg Barnes, senior vice president of marketing.

Johnson used to pay $79 in fees to a payday lender for a $200, two-week loan.

Community One Federal Credit Union offers a similar program to help members who have borrowed from payday lenders. Community One offers 30-day loans for $300, $500 and $700 with a fee of $15 per $100 loaned and an 18 percent annual interest rate or about 1.5 percent for the 30 day loan period.

About 2 percent of Community One’s 21,000 members take out a PayDayCHOICE loan occasionally, said Jerrold Rosen, vice president of marketing.

To qualify, a member must have $1,000 in monthly income, must have been employed continuously for the last six months and be 18 years old or older. The program is available to individuals with direct deposit of paychecks after 30 days of membership.

In order to get an AdvancPay loan from Nevada Federal, the borrower must be employed and must not be in default on an existing payday loan.

The credit union doesn’t do a credit check.

Still, Beal figures that the credit union makes money from the program while helping members that need short-term loans.

“The problem with pay day loans is that every pay day you’re broke again,” said Brad Beal, president of Nevada Federal. “It’s a vicious cycle.”

Nevada Federal’s AdvancPay program is “really a good deal for them, and it gets them out of the trap,” Beal said. In addition, Nevada Federal offers free financial counseling by telephone or Internet.

Borrowers can return for another payday loan when their current one is due. Alternatively, payday borrowers can convert their debt into an 18-month, 18 percent installment loan at Nevada Federal.

A survey of the Nevada Federal’s members showed that about one-quarter of them used payday lenders. The average income of Nevada Federal members are similar to those in Clark County, Beal said, but Southern Nevadans typically have poorer credit histories than individuals in other areas of the country.

“60 percent of the people in Las Vegas have credit scores that are blemished or worse,” Beal said.

Even some high income earners have used payday lenders. One member who relies on payday loans from the credit union earns more than $100,000 yearly, Beal said.

Community One has noticed the same sort of income diversity among payday borrowers.

“That was very surprising. They do come from all income levels,” Rosen said.

The demand for payday loans has slowed recently, Beal said. He doesn’t know why but said it could be because fewer members have jobs, members are spending less or because they have received income tax refunds.

Some members continue to use AdvancPay as a money management tool, but others borrow from the program only once or twice yearly, Barnes said.

“You can’t break them of that habit,” Rosen said. “But, as a credit union, our role is to provide them with a less costly alternative.”

Nevada Federal has a couple of companion programs designed to help members with financial problems. New Start Checking offers checking accounts to consumers who have been denied checking accounts at banks. Second Chance Visa gives consumers with financial problems an opportunity to have a credit card.

Nevada Federal has 82,000 members and $800 million in assets. Deposits are insured by the Nation Credit Union Adminstration, a federal agency.

 

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.

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