Over the past decade, the number of payday lenders in Wisconsin has
grown substantially. In 2007, Wisconsin had more than 524 payday
lenders that made 1.7 million loans totaling $733 million. These loans
have created an easy route to increasing consumer debt thanks to their
convenience combined with a lack of financial knowledge of many
borrowers. And since many payday lenders are not locally owned, these
businesses have also become a drain on our state’s economy.
Currently in Wisconsin there is neither a limit on
what these lenders can charge nor a limit on the number of times a loan
can be extended for an additional fee. Lawmakers and community leaders
have expressed concerns that these services target people in low-income
What’s the REAL Solution?
Often, members seeking a payday loan already qualify for a more
traditional loan charging a lower rate so credit unions will steer
members toward the most appropriate loan and lowest rates for which they
Other credit unions have developed their own programs for more
affordable short-term loans -- some with no credit checks. These loans,
which typically cost less than half what storefront lenders charge, may
include education or counseling, require some savings, allow a longer
time frame for repayment than the two weeks required by storefront
lenders, and limit rollovers to encourage timely repayment and improved
creditworthiness for borrowers.
Thus, credit unions are offering a critical balance between
emergency, short-term loans and small everyday loans that, together,
provide a safety net for working people facing a temporary cash
Protect your members from the short term loan trap by offering The
League’s new REAL Solution called StretchPay – The Credit
Union Salary Advance Alternative.
StretchPay – The Credit Union Salary Advance Alternative is a
turnkey program Wisconsin credit unions can provide to their members as
an alternative to expensive payday loans while limiting their risk of
loss. StretchPay is a special line-of-credit loan designed to make it
easy and less expensive for members to obtain affordable short-term
StretchPay is different from traditional lines-of-credit because:
It’s better for the member. A borrower must
repay the entire outstanding balance (plus interest) before subsequent
advances are permitted.
It’s significantly less expensive than a traditional
payday loan. Borrowers pay a $35 annual fee (for a $250 line of
credit) and an interest rate of up to 18% APR on their advances. Payday
lenders charge up to 780% APR for a two week advance.
It saves your members hundreds of dollars annually.
A borrower who uses StretchPay for 12 advances on a $250 line of credit
during a 12-month period will pay approximately $77 for 12-months’
access to the loan. A borrower who uses a traditional payday lender may
pay more than $400 for the same amount of credit.
StretchPay loans use minimal underwriting criteria. Members must be
18 years old, an established member of your credit union for at least 60
days, and not delinquent on existing loans or negative in any share
account. Members must have verifiable income, not be in the process of
filing for bankruptcy under any chapter of the bankruptcy codes, and
must not have caused a loss to the credit union.
A credit union offers a StretchPay loan with a CUSO called Credit
Union Outreach Solutions Inc. (CUOSI). Each time your credit union
collects an annual fee from a StretchPay borrower, you forward the fee
to CUOSI. In turn, CUOSI will typically return 90% of the principal
credit loss to your credit union in the event of a default. This way,
you are able to offer members an alternative to expensive payday lenders
without incurring the credit risk sometimes associated with
small-dollar, minimally-underwritten loans.
Many credit unions across Wisconsin have introduced their own
REAL Solutions by introducing their own payday loan alternatives to
members. Below are several articles from The League News on some of
What’s your REAL Solution to costly payday loans? Notify Jim Drogue,
Vice President of Credit Union Development at The League, at (800)
242-0833, Ext. 6005.