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StretchPay

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What’s the problem with payday loans?

 

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 areas.  

 

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 qualify.

 

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 crunch.

 

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.

 

 


 

What is StretchPay?

 

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 credit.

 

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How is it different?

 

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.

 

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Who is eligible for a StretchPay loan?

 

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.

 

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How does StretchPay reduce risk?

 

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.

 

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Beyond StretchPay

 

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 those alternatives.

 

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.

 

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Latest StretchPay News

StretchPay is an easy way to offer a payday loan alternative without the risk


CUs’ payday loan alternatives help them earn an exemption to payday loan bill


N.E.W. Credit Union sees success with StretchPay


St. Mary’s & Affiliates Credit Union saves members money with StretchPay


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