http://www.lscu.coop/content/download/20328/239631/REAL_Solutions_Payday_Loan_Toolkit_v032309 by ThinkCreative

LOAN PRODUCTS

Payday Lending A REAL Solutions速 Implementation Guide

Payday Lending is a 2009 publication of the National Credit Union Foundation’s REAL Solutions® program.

About the National Credit Union Foundation (NCUF) The National Credit Union Foundation (NCUF) raises charitable funds, runs innovative programs, and makes impactful grants for America’s credit union movement. NCUF’s mission is to “promote and improve consumers’ financial independence through credit unions.” Among the NCUF programs achieving this mission: REAL Solutions® — Helping millions of consumers gain access to affordable financial services, achieve financial literacy, grow savings, build assets, and buy homes. Development Education — Leading training on cooperative principles in the modern consumer marketplace to overcome what credit unions identify as the greatest threat to their future: “the eroding of credit union philosophy.” Social Impact Management — Meeting a “triple bottom line” that benefits credit unions, members, and communities.

About REAL Solutions® REAL Solutions® is the signature program of the National Credit Union Foundation. REAL — “Relevant, Effective, Asset-building, Loyalty-producing”— Solutions® works to help credit unions offer a wide range of products and services that have proven successful in serving working families with low wealth and modest means. Using product/business models created and tested by credit unions, REAL Solutions® disseminates information to credit unions through special meetings, an online impact center at www.realsolutions.coop, and state and national conferences. In the first two years as NCUF’s signature program, REAL Solutions® was adopted in 30 states and is saving members tens of millions of dollars. It has now become a documented business strategy for credit unions to grow their memberships by serving the underserved. Real people with real needs are finding REAL Solutions® at credit unions.

Disclaimer With respect to content of this publication, neither the National Credit Union Foundation, Inc. (NCUF) nor any of its affiliates or its or their respective employees make any express or implied warranty or assume any legal liability or responsibility for accuracy, completeness, or usefulness of any information, commercial product, service, process, provider, vendor, trade name/mark that is disclosed. References to any specific commercial product, service, process, provider, vendor, or trade name/mark in this publication also does not necessarily constitute or imply that such a product or provider is endorsed, recommended, or warranted by NCUF. The views and opinions of the authors expressed herein do not necessarily state or reflect those of NCUF and such reference shall not be used for advertising or product endorsement purposes. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher, NCUF, is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

For more information, contact:

Payday Lending: A REAL Solutions® Implementation Guide

REAL Solutions® c/o National Credit Union Foundation 601 Pennsylvania Avenue NW, Suite 600 Washington, DC 20004-2601 Phone: 800.356.9655, x6770 Email: lkitsch@.ncuf.coop Fax: 202.638.3912 Web: www.realsolutions.coop

About the Author Nancy Pierce, Ph.D., is the President of Tipton Research Group in Kansas City, MO which provides research and consulting services to the credit union industry. She is a 25-year veteran of the credit union industry and served as president of Mazuma Credit Union in Kansas City, MO and Chairwoman of both the Missouri Credit Union Association and the Credit Union National Association (CUNA). Following her retirement from Mazuma Credit Union, Nancy received her Ph.D. in Consumer and Family Economics from the University of Missouri – Columbia in 2004. She is currently serving as a Field Coach for the National Credit Union Foundation’s REAL Solutions® program in Texas, Colorado and Wyoming, and previously worked in Missouri, Kansas, Montana and New Mexico. Nancy is particularly impassioned about helping modest means households build wealth and financial security.

Acknowledgements I would like to express my gratitude to the 10 credit unions that willingly shared information regarding their payday-alternative loan products: 1st Financial Federal Credit Union in St. Charles, MO Four Corners Federal Credit Union in Kirtland, NM Hershey Federal Credit Union in Hummelstown, PA Missoula Federal Credit Union in Missoula, MT Northwest Community Credit Union in Eugene, OR Prospera Credit Union in Appleton, WI Rivermark Community Credit Union in Beaverton, OR United Credit Union in Mexico, MO Veridian Credit Union in Waterloo, IA Wright-Patt Credit Union in Fairborn, OH I would also like to thank the three companies that do business with the subprime payday industry for the information they provided for this implementation guide: CL Verify, LLC in Tampa, FL Teletrack in Norcross, GA TranDotCom (TDC) Solutions in Kennesaw, GA

Payday Lending: A REAL Solutions® Implementation Guide

Table of Contents

Section 1:

Introduction ............................................................................................................4

Section 2:

Implementation Considerations ..............................................................................5

Section 3:

Product Design.......................................................................................................8 Model 1: Wright-Patt CU—StretchPay.................................................................11 Model 2: Missoula Federal CU—Payday Alternative Loan (PAL).........................22 Model 3: United CU—UCU CASH .......................................................................24 Model 4: Northwest Community CU—Paycheck Today Line of Credit ................29 Model 5: Hershey Federal CU—Better Choice ....................................................37 Model 6: Veridian CU—Payday Alternative Loan (PAL).......................................46 Model 7: Four Corners FCU—Paycheck Advance Loan ......................................55 Model 8: 1st Financial Federal CU—Fast Ca$h Loan...........................................58 Model 9: Rivermark Community CU—PayDay Advance Loan .............................62 Model 10: Prospera CU—GoodMoney Payday Loan...........................................65

Section 4:

Product Pricing and Profiles.............................................................................................70

Section 5:

Regulations......................................................................................................................82

Section 6:

Business Plans, Policies & Procedures............................................................................88

Section 7:

Marketing the Product......................................................................................................93

Section 8:

Managing Collections and Charge-offs ............................................................................99

Section 9:

Education and Training ..................................................................................................101

Section 10:

Measuring Success........................................................................................................109

Section 11:

Other Resources and References..................................................................................111

Payday Lending: A REAL Solutions® Implementation Guide

1. Introduction Estimates of payday loan volume vary between $28 billion and $40 billion per year with consumers paying between $4 billion and $8 billion in fees each year for a loan that generally lasts two weeks. Despite its expensive costs, the industry has experienced exponential growth since 1990. Are credit union members using payday lenders? Research says they are and in larger numbers than anticipated. It’s estimated that 10% to 20% of credit union members choose to use a payday lender for their short-term cash needs. Whereas many of these members may qualify for the credit union’s betterrate personal loan, many credit unions either won’t make loans for less than $500, or if available, don’t advertise such loans. And many credit union members/consumers admit they don’t trust themselves with a $500 or $1,000 line-of-credit. The temptation to use it for wants – not needs – can be overwhelming and costly. The result can be another loan payment when living paycheck to paycheck is already tenuous. Credit unions can be part of the solution to high cost payday lending by offering the right product at a price that is a good value for the member, but still sustainable for the credit union. Alternative payday lending products enable credit unions to reach out to those who are struggling financially and help them break the cycle of debt that grips them. This payday loan implementation guide is intended to help credit unions develop solutions that are appropriate for the credit union and its members. It is not a turn-key answer, but some turn-key products are featured as examples. Other successful one-of-a-kind models are also featured along with loan results, collection techniques, sample procedures and marketing materials. Credit unions can use the implementation guide to help create a payday loan alternative that is both a good deal for the member/consumer and also sustainable from a business perspective. If your credit union is just beginning to consider a payday loan alternative, you may want to start with the first section: Implementation Considerations. If you already have given some thought to an alternative product but are struggling with pricing or policy issues or want to know how to market your new product, you can go directly to those sections. This implementation guide complements a white paper entitled, Payday Lending: The Credit Union Way that can be accessed at the REAL Solutions® Impact Center at www.realsolutions.coop. The implementation guide will not necessarily repeat or copy information that is included in the white paper. We suggest that credit unions use both resources as they design their payday lending alternative product. The final sections of the implementation guide cover training staff, educating members, and measuring the success of your payday-alternative loan product. The intended readers for this guide are credit union managers and board members who wish to implement a payday loan product. Therefore, acronyms and jargon may be used that assume familiarity with credit union operations. A separate page listing acronyms used and their meanings has been included as part of the appendices. The credit union models included in this implementation guide were selected to provide a broad array of pricing structures, loan features, underwriting criteria and time-tested results. Readers may find some of the pricing formats more objectionable than others. However, this guide avoids making judgment as to what rates or fees are appropriate, given the fact that pricing can and should vary considerably depending on how much risk the credit union is willing to undertake.

Payday Lending: A REAL Solutions® Implementation Guide

2. Implementation Considerations Where to Begin? Prior to implementation of any new product or service, it is critical to obtain commitment from the board, management and frontline staff. The organization must have a common vision of the purpose of the product and the motive for offering it. If your credit union board, management and/or staff are not convinced a payday loan (PDL)-alternative should be part of your loan portfolio, the following suggestions can help you create a business case and ultimately a business plan. Like any new product line – particularly a non-traditional one – time and resources must be dedicated up front to ensure comprehensive alignment and commitment. Are Our Members Using Payday Lenders? The payday lending industry reports between 15% and 20% of checks it receives are written on credit union checks. So it is likely some of your members are using payday lenders. A good starting point in building your business case is to estimate the volume of business your members take to payday lenders. 



Ask your staff.  How many of your Automated Clearing House (ACH) transactions are from payday lending stores such as Advance America, Cash America, Quik Cash, etc.?  How many phone calls are coming in from payday lenders to verify if checks will clear?  How many payday lenders are standing in your teller lines to collect on checks? Count how many PDL stores are within three to five miles of your branches. If the count is more than a couple, chances are the demographics of the neighborhood fit the profile of PDL users. (See Payday Lending: The Credit Union Way for a profile of payday loan borrowers.) What percentage of your members lives or works in that same area, or what percentage lives or works in other neighborhoods with a high concentration of payday lenders? Do a “data scrub” of your membership data base with Teletrack to find out how many used a payday lender within the past 3 to 24 months. (See Teletrack under “Alternative Credit Reporting Services” in Section 11 of this guide for costs and contact information.)

Why Develop a PDL-Alternative Product? Credit unions with PDL-alternatives offer these reasons for including a short-term cash loan:  Members are requesting signature loans for less than our minimum loan amount of $500.  Members with poor credit history argue – you already get my money, my direct deposit – so why am I being denied credit?  Members are paying as much as 500% APR in fees to payday lenders; our credit union can fulfill this need at a much lower cost to them.  Members are obviously borrowing and repaying these loans to payday lenders on a timely basis so why aren’t we willing to take a similar risk?  We want to offer members who are experiencing financial difficulties or those caught in the PDL cycle with a “bridge” product until they get back on their feet.  We know our members are hearing about the ease and affordability of payday loans through radio and television, so we want to let them know they have a credit union option that is even better than a payday lender’s.  We looked out the window and saw our members go to the payday lender next door and then come in to the credit union to deposit their cash. Looking out the window helped us look internally at what we needed to offer our members, not just what we wanted to offer.

Payday Lending: A REAL Solutions® Implementation Guide

More Frequently Asked Questions As you build a business case and plan for a PDL-alternative, you may encounter resistance from board and staff who remain uncomfortable about a non-traditional loan product, especially one associated with the payday lending industry. The following are other frequently asked questions and responses. Because there are many variations of PDL-alternatives, these responses are general in nature. Revise them to fit your proposed product. 

Will credit unions be viewed the same as payday lenders? No, not if credit unions create a product that is a better value than other options. Many credit unions also promote thrift and encourage financial education to users of their payday loan programs. Many consumer groups and legislators see credit unions as the answer to payday lenders and support efforts to provide an alternative product. By offering a PDL-alternative, credit unions send members this message: “American households are struggling financially. Credit unions can offer you more and better options than traditional payday loans.”



Will credit unions be able to help people get out of the payday lending cycle? All credit unions want to move their members out of the payday lending cycle. Credit union products most often offer payment options longer than the two weeks required by payday lenders. This helps members better manage the payments and keep renewals at a minimum. While credit union products are designed to offer lower cost PDL alternatives, not all effectively move people out of the payday loan cycle. Recognizing this, many credit unions offer a longer-term payday consolidation loan in addition to their traditional payday loan alternative. Front-line and lending staff needs to be trained to offer counseling assistance to frequent users steering them to other credit union loan and saving products.



Won’t this increase lobby traffic and put an extra burden on front-line staff? Increase in lobby traffic will depend on the type of product the credit union offers. Many credit unions offer online or call center products eliminating most lobby traffic. Others have seen some increase and others a dramatic increase in lobby traffic. For this reason it is critical that PDL products be priced to cover the added costs of offering the product to ensure ongoing sustainability. To manage lobby traffic, the product needs to be as efficient as possible. Underwriting criteria should be easily available so members can pre-qualify themselves for the loan, lessening turneddown applications. PDL stores can process a loan in 10 to 20 minutes. This should also be the goal for credit unions.



Isn’t making loans to those with poor credit really risky? Why would we want to set ourselves up for substantial write-offs? Losses within the traditional PDL industry average between 4% and 5% of loan volume. PDL customers often perceive payday lenders as their lender of last resort—that is, their last source for credit—and don’t want to cut the cord to that last option when financial emergencies occur. Credit unions should be prepared for higher delinquency on PDL alternative products. However, PDL alternatives are small and therefore are only a small portion of the overall loan portfolio. There are a number of ways for credit unions to mitigate risks. Having an established relationship with the member is one way. As part of the underwriting criteria, credit unions can require the borrower be a member for a certain period of time, have an active checking account and/or have direct deposit. Credit unions can also require a portion of the loan proceeds be placed in a savings account that would secure a portion of the debt. Credit unions offering a new product often limit the amount of PDL portfolio until the credit union has more experience with it.

Payday Lending: A REAL Solutions® Implementation Guide



Will the credit union lose money with this product? It depends upon the business strategy the credit union pursues. Sustainable products can be achieved in a number of ways. Credit unions can look at this product as a marketing tool or new business development tactic as a means to attract the underserved population in local communities, thus growing membership. Use of the PDL product may enable these borrowers to move into more traditional loan and saving products. Credit unions should price the product and offer terms and conditions that favor both the credit union and the member. There are many ways the product can be priced depending on whether you want to just break even or make a profit. As part of the business plan, credit unions should have discussions with board and executive staff to determine pricing philosophy. The right price is a blend of credit union values mixed with a sound business perspective.



Won’t the credit union need to be open longer hours and on weekends? Not necessarily. Whereas payday lenders are more apt to be open some evenings and Saturdays because their customers have to come into the store to conduct business, credit unions have alternative methods of handling members’ needs. Initially members may have to come in to apply for the loan and provide necessary documentation, but thereafter advance requests can be done by phone or through our secure website. Loan proceeds can be deposited into checking or savings accounts for withdrawal by check, ATM, or debit card.



What benefits are there for offering a product such as this? The benefits are many:  Offering a PDL product will build member loyalty. Members will discover their credit union is willing to meet their short-term financial crises for a lot less than what it costs to get loans at a payday lender.  It is a way to grow membership. A short-term cash loan may attract new members currently using payday lenders. In turn, members may use other products – such as your checking and direct deposit services. Remember, PDL borrowers must have a checking account somewhere to obtain a loan.  It is a way to attract younger members. The industry profile of a PDL borrower reports a median age of 32, with 68% under the age of 45.  This product will enable credit unions to serve the financial needs of more of their members. Credit unions should promote the concept that they want to be members’ primary financial institution. Oftentimes credit unions turn members away because of credit blemishes. With a PDL-alternative, credit unions can build relationships with more members and help them move up the path to more traditional credit union products.  Credit unions help members improve their credit scores by reporting positive loan activity to the prime credit bureaus. Payday lenders do not. Reporting timely payment history will improve scores, enabling members to qualify for more traditional and better-priced loans.  PDL users will save money with credit union PDL-alternatives which, in turn, increases the likelihood that they will better manage their finances. They will have access to credit union financial counselors and financial budgeting tools for improving money management skills. Credit unions can then help members climb the ladder to wealth-building and financial security.

Include Board and Staff in Product Design Efficient product delivery is critical. But equally critical is mitigating risk. The right balance requires input and buy-in from both board and staff. The worksheet and discussion questions contained in the white paper, Payday Lending: The Credit Union Way can serve as a basis to do that. A board/management planning session is an ideal opportunity to both educate board members about the PDL industry and its users, as well as obtain their input and commitment to an alternative product. Credit union executives are strongly advised to know their boards’ risk tolerance and to have risk measurements or limits built into the program to ensure losses remain within acceptable tolerances. Again, the white paper will help walk you through strategies to mitigate some of the risk. Payday Lending: A REAL Solutions® Implementation Guide

3. Product Design and Profiles The white paper, Payday Lending: The Credit Union Way provides many of the specifics needed to design a model that fits your credit union’s strategy. Use the paper to walk through the various decisions that need to be made. Appendix A of the paper contains a valuable worksheet with questions and possible responses to guide you through the process. In this section, 10 different payday loan-alternative products are featured. You will find a wide variety of approaches and results. Most of the 10 models have track records of a year or lonoger and the credit unions implementing these models have graciously provided results, including loan volume, income and losses. Many also provided sample forms and marketing materials. These samples follow the product presentation as Exhibits so that if you have additional questions about them or the product, you can follow up with the credit union contact person. The first four product features are open-end structures. They include:  Wright-Patt Credit Union and its StretchPay Loan – Model 1  Missoula Federal Credit Union and its Payday Alternative Loan (PAL) – Model 2  United Credit Union and its UCU Cash Loan – Model 3  Northwest Community Credit Union and its Paycheck Today Line of Credit – Model 4 The remaining six product features are closed-end structures. They include:  Hershey Federal Credit Union and its Better Choice Loan – Model 5  Veridian Credit Union and its Payday Alternative Loan (PAL) – Model 6  Four Corners Federal Credit Union and its Paycheck Advance Loan – Model 7  1st Financial Federal Credit Union and its Fast Ca$h Loan – Model 8  Rivermark Community Credit Union and its PayDay Advance Loan – Model 9  Prospera Credit Union and its GoodMoney Loan – Model 10 A general overview of the various credit union payday loan models follows:

Payday Loan Feature

The “Norm”

Maximum Loan Limits

$500

Exceptions & Examples   

Minimum Loan Amounts

Range from $50 to $500

Payday Lending: A REAL Solutions® Implementation Guide



Northwest Community CU—$300 Four Corners FCU—$700 Veridian CU—$1,000 (but ½ must be placed in a restrictive savings account until the loan is paid 1st Financial FCU only offers a $500 advance

Payday Loan Feature

The “Norm”

Loan Terms

Vary considerably from 14 days to 6 months

Length of Membership Requirements

30-to-90 days

Exceptions & Examples

  

User Demographics

Product Usage (as a percent of total members)

Varies depending on field of membership

Varies by credit union, but is generally tied to how long the product has been in place

Payday Lending: A REAL Solutions® Implementation Guide

Prospera CU—no time requirement Rivermark Community CU—six months Veridian CU and Four Corners FCU require direct deposit in lieu of length of membership requirements



Prospera CU’s users By age: 18 to 35 38% 36 to 54 50% 55 or older 12% By household income: Less than $45K 63% $45K to $65K 36% More than $65K 2%



Missoula FCU’s users By age: 18 to 35 50% 36 to 54 38% 55 or older 12% By household income: Less than $30K 54% $30K to $60K 37% More than $60K 9%

Product in place for:  one year United CU—1.5% Missoula FCU—.8 %  four years Prospera CU—10% Four Corners FCU—14%

Payday Loan Feature

The “Norm”

Losses (as a percent of total loans disbursed or total advances)

Varies depending on risk mitigation factors incorporated into loan structure

Exceptions & Examples 



Customized vs. Turnkey Product

Customized

With direct deposit requirement Four Corners FCU—.3% Veridian CU—1.8% With 60-day membership requirement Wright-Patt CU—1.7% No membership term requirement Prospera CU—4.6%

Turnkey products  StretchPay (Wright-Patt CU)  GoodMoney (Prospera CU)

Another resource for help in designing a loan product is the Federation of Community Development Credit Unions’ Best Practices for payday alternative products that can be accessed at www.cdcu.coop.

Payday Lending: A REAL Solutions® Implementation Guide

Model 1: StretchPay A Credit Union Salary Advance Alternative

Wright-Patt Credit Union 2455 Executive Park Blvd. Fairborn, OH 45324

www.wpcu.coop Assets:

$1.5 billion

Members: 172,822 Contact:

Linda Stephens, VP Lending (937) 912-7000 LStephens@wpcu.coop

StretchPay is a turnkey salary advance product of Credit Union Outreach Solutions, Inc. (CUOSI) – a non-profit corporation formed in June 2006 to assist credit union outreach and community commitment initiatives. StretchPay is offered through 46 credit unions in six states and the District of Columbia. See more about CUOSI and membership information below in “About CUOSI.” Loan Features:  Open-end line-of-credit (LOC)  Two LOC options: $250 or $500  $35 annual fee for $250 LOC; $70 annual fee for $500 LOC  18% APR  Must be repaid in full in 30-days  No additional advances until paid in full  Members start with $250 limit for six months before going to $500 limit Note: A new two-month payment schedule for the $500 limit was launched October 1, 2008 by Wright-Patt Credit Union (Wright-Patt CU) to experiment with and report back to CUOSI. Wright-Patt CU’s management noticed members with a $500 limit were more apt to become delinquent than those with the smaller $250 limit, so it wanted to test a longer payment period. Underwriting Criteria:  Must be at least 18 years old  Must be a credit union member for at least 60 days  Cannot be delinquent on an existing loan or have negative shares  Cannot have caused credit union a loss  Must have verified income  Minimum net income of $1,300 per month (only for the new $500 limit with two-month payment schedule)  $50 of first $500 advance is deposited into the member’s share account and frozen until the expiration date of the loan in 12 months; dividends are earned on the deposit Payday Lending: A REAL Solutions® Implementation Guide

Procedures: 

Internal written procedures follow (see Exhibit 1).

Results for January through October 2008:  4,817 active StretchPay loans  44,101 advances for period  $13,555,123 total advances for period  Members tend to use the StretchPay Loan an average of seven times a year  Average StretchPay loan is $500  Through 10 months, the credit union has collected $174,410 in StretchPay annual fees – which is paid to CUOSI  Over same period, StretchPay losses were $235,127 or 1.7% of total advances (prior to reimbursement from CUOSI)  Interest earned on this portfolio of loans over same period: Not tracked  StretchPay delinquency as of October 2008:  30 days – 1.76%  60 days – 4.71%  90 days & over – 2.70% Note: Losses for 2008 were high because of loans over 90 days delinquent that had not been previously charged off. Collection Activity Procedures:  An automated pre-call is made seven days before the due date to remind the member of the due date and payment amount.  When the loan is 16 days past due, the first collection call is made.  There are normally three to six calls made on the loan prior to charge-off.  StretchPay loans are recommended for charge-off after 60 – 90 days delinquent. Risk Advice:  Collect some type of annual fee to help offset your losses.  Get proof of income on these loans.  Do a hard close.  Be more aggressive with early delinquencies.  Closely monitor the activity of this portfolio of loans so that you can make changes if necessary.  Pull a credit report to use as a tool to counsel the member. Sample Forms Included:  Wright-Patt CU’s Internal Procedures for StretchPay Loan (Exhibit 1)  Wright-Patt CU’s Open-End Credit Agreement (Exhibit 2)  StretchPay Creditorial (Exhibit 3) About CUOSI: Credit unions can offer StretchPay through a not-for-profit organization called Credit Union Outreach Solutions, Inc. (CUOSI), headquartered in Ohio. The annual fees collected from members are forwarded to CUOSI. In return, CUOSI helps offset credit union losses under the program up to 90% of the loan balance. StretchPay is offered at 137 branches through 46 credit unions located in Ohio, Michigan, Colorado, Wisconsin, North Carolina and Washington, DC. Credit unions pay $25 per $1,000 in assets up to a maximum of $15,000 to join CUOSI. Marketing materials are offered through a start-up kit. For more information about StretchPay or CUOSI, go to http://www.ohiocreditunions.org/StretchPay/CUInfo.htm or contact Becky Hart at the Ohio Credit Union League at (800) 486-2917 or rhart@ohiocul.org. Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Wright-Patt Credit Union’s Internal Procedures for StretchPay Line-of-Credit The Stretch Pay Line-of-Credit (LOC) is a Credit Union Salary Advance Alternative. This loan is designed to help members whose credit histories preclude them from qualifying for loans under current Wright-Patt Credit Union (WPCU) criteria. This product would serve to reduce member dependency on “Payday Loans” or other predatory lending practices. Members applying for a StretchPay LOC for the first time must start with a $250.00 credit limit. After six months with payments as agreed, the member can apply for the $500.00 limit. After a 12-month payment history on the $500.00 credit limit, the member may apply for a traditional line-of-credit.

Member Qualifications 1. Must be at least 18 years of age. 2. Account must be open for a minimum of 60 days. 3. Must have verifiable income. An example of verifiable income would be, but is not limited, copies of current pay stubs (within 1-2 pay cycles) with the member’s current address. 4. Must be a Member in Good Standing at the time of loan application and/or at the time each advance is made. Refer to Management Policy 3003: Member in Good Standing for details.

Loan Details 1. 2. 3. 4. 5.

Loan deferments/amendments will not be granted on these loans. Must not be in the process of filing for bankruptcy under any chapter of the bankruptcy code. Not eligible for Skip-A-Pay. Not eligible for credit life and accidental health coverage. Not eligible for advances via home banking or Call-24.

Underwriting The “approval” of these loans will not be based upon credit history or credit score. A credit report will be pulled on each applicant in an effort to counsel them on their current financial status and provide guidance for future financial requests. The member must provide full information on 2 references when applying for a StretchPay Lineof-Credit:  References should be family or close family friend.  Information required includes name, address and phone number for each reference.  Reference information provided must be different from the member and different from other references. A collection and/or civil judgment with a check cashing lender within last 24 months are reasons for denial. More than one inquiry from a check cashing lender within the last 60 days is reason for denial. Must not have had a SPLOC closed by the credit union in the last six months.

Payday Lending: A REAL Solutions® Implementation Guide

Repayment $ 2 5 0 Cr e di t Limi t

The balance of the $250 StretchPay Line-of-Credit must be paid within 30 days of the date of the most recent advance. Payments may be made at any member center, through the mail, or by automatic payment such as direct deposit. Subsequent advances are not permitted until previous advances are repaid. $253.70 payment required for a $250.00 credit limit The payment is based on 30 days interest. If the member pays the loan off before the 30 days, the payoff amount will be less. $ 5 0 0 Cr e di t Limi t

Issued on or after October 1, 2008. The balance of the $500 StretchPay Line-of-Credit has a 2-month repayment term. A payment of $255.63 is required within 30 days of the date of the most recent advance, with the balance being paid on or before the 60th day. Payments may be made at any member center, through the mail, or by automatic payment such as direct deposit. Subsequent advances are not permitted until previous advances are repaid. Stretch Payâ&#x20AC;&#x2122;s with the $500 credit limit issued prior to October 1, 2008; still have a 1-month repayment period.

Interest Rate The interest rate on StretchPay loans is 18.0% fixed which is set by Management, and is subject to change at any time after proper notice is provided.

$500 Credit Limit - $50 Hold The $500 credit limit SPLOC must be advanced at disbursement and $50 of the advance must be frozen in the regular share account. This $50 must remain frozen throughout the life of the SPLOC.

Annual Participation Fee An annual participation fee is collected when the loan is initially disbursed and each year thereafter on the anniversary date (date in the Credit Limit Expiration field in the loan record). Loans with a $250 credit limit will have a $35.00 annual participation fee. Loans with a $500 credit limit will have a $70.00 annual participation fee If a member moves from a $250 limit to a $500 limit before the Credit Limit Expiration date is met, they must pay the $70 annual participation fee. There will not be any refund given on the participation fee already paid for the year on the $250 StretchPay Line of Credit.

Payday Lending: A REAL SolutionsÂŽ Implementation Guide

If an advance on a StretchPay Line-of of-Credit (SPLOC) prompts the following warning message, this may indicate that the annual participation fee is due.

NOTE: Effective 12/1/08, all existing $500 SPLOCâ&#x20AC;&#x2122;s that have reached their Credit Limit Expiration Date will not be renewed under the old $500 SPLOC guidelines. This product is no longer available. The Credit Limit Expiration Date must remain expired, tthe he Credit Limit removed and the Close Date set once the loan has been paid in full. A new application must be keyed into Velocity based on the new guidelines for $500 SPLOCs that went into effect on 10/1/08. For all SPLOCs, go to Account Manager and clic click k on the StretchPay loan record and review the Credit Limit Expiration date. If the date has past, a review of the loan will need to done prior to changing the date in this field.

R evi e wi n g t h e L oa n

Every 12-months months StretchPay LOCs must be reviewed to d determine etermine whether the member is still eligible for this product. If the member has abused privileges we will close the loan. 1. The member must not have a negative balance in any of their sub sub-accounts. accounts. 2. No other loan should be delinquent.

Payday Lending: A REAL SolutionsÂŽ Implementation Guide

3. Payments should have been made as agreed. Review the loan record for the StretchPay LOC to determine how many times the loan has been more than 10 days past due.

Note: These figures are for the entire life of the loan. If these are excessive, further investigation may be necessary

In this example, the loan was over 10 days delinquent twice. C h a n gi n g t h e C r e di t Li mi t E x pir a ti o n

If the member qualifies to continue using this product, manually advance the Credit Limit Expiration date to one year from the date you collect the fee. Continue to collect the fee using the procedure below. C oll e ct in g t h e F e e

If the member qualifies for another 12 months, you will need to collect the fee. To collect the fee, follow the steps below: 1. With the account pulled up in Teller Transactions, enter SW SC GL at the Transaction Codes prompt. This must be done as a separate transaction from the loan advance. 2. If necessary, select a Share ID from which the money will be withdrawn. 3. At the Withdrawal prompt, enter the amount of the StretchPay LOC annual participation fee ($35.00 for $250 credit limit or $70.00 for $500 credit limit). 4. At the Comment prompt, select comment #60 from the drop-down list (or type “60” at the prompt, then press Enter).  Make sure to link the comment to the last transaction. 5. At the Select GL Account box, enter “BLOC.” (make sure to include the decimal at the end). 6. Accept the default of Credit at the Selection prompt. 7. Complete and post the transaction. G e n er al H ol d R e c o rd

If the SPLOC was opened on or after October 1, 2008 with a $500 credit limit, you will also need to change the Expiration Date in the General Hold record (with Reference 1 = SPLOC $50) under Share ID 00 to reflect the same date as the Credit Limit Expiration in the loan record.

Payday Lending: A REAL Solutions® Implementation Guide

Closing/Canceling the Loan If you believe that the member does not qualify for this product any longer, consult with your supervisor who will make the determination on whether the SPLOC should be renewed or closed. If it is determined that it will be cancelled by us, a ‘Notice of Adverse Action’ letter must be generated and sent to the member. This is done by creating an application in Velocity and then denying it.

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 2: Wright-Patt Credit Union Open-End Credit Agreement

CREDIT LINE ACCOUNT AGREEMENT AND DISCLOSURE P.O. Box 286, Fairborn, Ohio 45324 Local (937) 912-7000 Wats: (800) 762-0047 TDD (937) 912-7001

THIS IS YOUR CREDIT LINE ACCOUNT AGREEMENT AND IT INCLUDES NECESSARY FEDERAL TRUTH-IN-LENDING DISCLOSURE STATEMENTS, F IRST TIME USER/ STUDENT VISA, VISA PLATINUM, SHARE SECURED VISA, FIRST TIME USER/STUDENT MASTERCARD, MASTERCARD PLATINUM AND SHARE SECURED MASTERCARD AGREEMENTS, AND ANY SPECIAL INSTRUCTIONS REGARDING THE USE OF YOUR F IRST TIME USER/STUDENT VISA, VISA PLATINUM, SHARE SECURED VISA, FIRST TIME USER/STUDENT MASTERCARD, MASTERCARD PLATINUM AND SHARE SECURED MASTERCARD CREDIT CARDS, AND/OR ANY OTHER ACCOUNT ACCESS DEVICE. PLEASE BE CERTAIN TO READ THIS AGREEMENT CAREFULLY AND NOTIFY US AT ONCE IF ANY PARTS ARE UNCLEAR.

In this Agreement, the reference to "We", "Us", "Our" and "Credit Union" mean WRIGHT-PATT CREDIT UNION, INC. The words "You" and "Your" mean each person accepting this Agreement. If this is a joint Account, read singular pronouns in the plural. The words "Card" and "Credit Card" mean any First Time User/Student VISA, VISA Platinum, Share Secured VISA, First Time User/Student MasterCard, MasterCard Platinum or Share Secured MasterCard Credit Card issued to You by Us and any duplicates or renewals. Convenience Checks mean the special Account access devices that We may provide for Your use from time to time. You, as the Borrower, under a Credit Line Account ("Account"), understand that the following Federal Disclosure Statement and the terms and conditions found herein constitute Our Agreement with You. Your Account may be accessible through a variety of means which could include advance request forms, vouchers, checks, charge slips, Convenience Checks, Credit Cards and the like. Regardless of the access means, You promise to pay Us all amounts charged to Your Account by You or by any user who has access to Your Account, with actual, apparent or implied authority for use of Your Account, including Finance Charges and other fees or charges described herein. FEATURE CATEGORIES. Your Account has Feature Categories which may include Signature, ReadyLine (including Overdraft Protection), Stretch Pay Line of Credit, Personal Property Secured (a label to reference certain Feature Categories secured by personal property described on a separate sheet of paper labeled "Additional Disclosure - Federal Truth-In-Lending Act" and/or "Credit Line Account Advance Request and Security Agreement"), Share Secured-Standard, Share Certificate Secured, First Time User/Student VISA, VISA Platinum, Share Secured VISA, First Time User/Student MasterCard, MasterCard Platinum and Share Secured MasterCard. ADVANCES . Whenever You request a transaction, W e may require You to prove Your identity. If You request an advance by telephone, W e will deposit the amount requested in Your Share Account or Your Share Draft Account and You authorize Us to do this, or We may draw a draft or check made payable to You and mail it to You. W hen the amount advanced appears on a subsequent statement, that will be conclusive evidence of Your telephone request. You understand that all adv ances are subject to Our prior approv al and, in particular, whether or not any specific secured advance request is approved may be, in part, determined by how much equity You hav e or will have in the shares and/or collateral offered as security. For advances under Your Stretch Pay Line of Credit Feature Category, all adv ances must be equal to Your approv ed Credit Limit. SECURITY. As permitted by law , to secure all transactions under this Agreement in either joint or individual Accounts, We have the right to impress and enforce a statutory lien against Your shares on deposit with Us (other than those deposits established under a governmental approved tax deferral plan such as an IRA or Keogh Account), and any dividends due or to become due to You from Us to the extent that You owe on any unpaid balance on Your Account and We may enforce Our right to do so without further notice to You. Additionally, You agree that We may set-off any mutual indebtedness. Whether additional security will be required depends on the type of advance You request. If You request an advance under a Feature Category which describes personal property, that property, including the proceeds of the sale of such property , must also be given as collateral. For ex ample, a Feature Category called "New Car Advances" m eans the security will be a new car. The fact that we are acquiring a security interest in certain Property or Shares w ill be disclosed in the Credit Line Account Advance Request and Security Agreement form related to any initial secured advance. You will be provided a copy of that form at the tim e You receive the initial advance for any secured Feature Category. Except for Our security interest, any Collateral pledged as security for Your Account is owned free and clear from any liens, adverse claims, security interests or encumbrances. Without Our ex press written consent, no other liens, security interests or encumbrances will be allowed to attach to the Collateral. You agree to inform Us immediately if the Collateral is to be moved from the address We have on file for You or at such other address at which You have inform ed the Credit Union the Collateral is now located. The Collateral will not be sold or otherw ise transferred and at all tim es the Collateral will be kept in good repair. The Collateral shall not be used for any unlawful purpose. We shall receive Your full cooperation in obtaining everything that W e require to place and/or maintain Our security interest and/or lien in the Collateral. We m ay examine and inspect the Collateral at any time, wherever located. All tax es or assessm ents on the Collateral shall be paid as they come due; if not paid, We may pay them and will be entitled to reimbursement or alternatively, charge that amount to Your Account, under the related Feature Category. You acknowledge that You own any shares and/or collateral pledged as security and that there are no other liens against them other than Ours. You agree to perform all acts which are necessary to make Our security interest in the shares and/or collateral being pledged enforceable. All certificates which are pledged as Collateral m ust be renewed until Your outstanding balance is paid in full. Failure to renew any certificates securing any advance will cause Your entire outstanding Account balance to become immediately due and payable. OTHER S ECURITY. Collateral (other than household goods or any dwelling) given as security under this Agreement or for any other loan You m ay have with Us will secure all am ounts You owe Us now and in the future if that status is reflected in the "Truth-in-Lending Disclosure" in any particular Agreement evidencing such debt. LIEN ON SHARES. If You have been issued a Credit Card, You grant and consent to a lien on Your shares with Us (except for IRA and Keogh Accounts) and any dividends due or to become due to You from Us to the extent You ow e on any unpaid Credit Card balance. ACCOUNT RESTRICTIONS . In order to receive and maintain a Share Secured-S tandard, Share Certificate Secured, S hare Secured VISA or Share Copyright Oak Tree Business Systems, Inc., 2005-2007. All Rights Reserved.

Payday Lending: A REAL Solutions速 Implementation Guide

S ecured MasterCard Feature Category, You agree to give Us a specific pledge of shares w hich will equal Your Credit Limit. In the event that You default on Your Account, W e may apply these shares toward the repaym ent of any amount owed on Your Share Secured-Standard, Share Secured Certificate, Share Secured VISA or Share Secured MasterCard Feature Category. You may cancel Your Share S ecured-Standard, S hare Certificate Secured, Share Secured VISA or Share S ecured MasterCard Account at any time by paying any amounts owed on Your S hare Secured-Standard, Share Certificate Secured, S hare Secured VISA or Share S ecured MasterCard Feature Category . To be certain that Your entire balance and all adv ances on Your Account are paid, any shares pledged may not be available to You for 30 days after You hav e cancelled and any outstanding balance is paid in full. LINE OF CREDIT LIMITS. You will be notified of each specific Credit Limit for e ach Feature Category for which You are approved. Unless You are in default, a ny Credit Lim its established for You will generally be self-replenishing as You m ake payments. You will keep Your unpaid balance w ithin Your Credit Limit set by Us, and You will pay any amount over Your Credit Limit on O ur dem and whether or not We authorize the advances which caused You to exceed Your Credit Lim it. Even if Your unpaid balance is less than Your Credit Limit, You w ill hav e no credit available during any time that any aspect of Your Account is in default. J OINT ACCOUNTS. Each Borrower will be responsible, jointly and severally, for the repayment of any amounts owed. If any Account access device, such as a Personal Identification Number (PIN) is requested and approved, You understand that any such Account access device(s) will be mailed only to the prim ary Borrower at the address that W e have on file for You. We m ay refuse to follow any instructions w hich run counter to this provision. MINIMUM MONTHLY PAYMENTS (PAYMENT SCHEDULE). Though You need only pay the Minimum Monthly Payments, You understand that You have the right to repay at any tim e without penalty. You also understand that You will only be charged periodic Finance Charges to the date You repay Your entire balance. You m ay m ake larger payments without penalty . Any partial payment or prepayment w ill not delay Your next scheduled payment. All payments to Us must be in lawful m oney of the United States. We may apply each payment to w hichever Feature Category W e w ish. For all Feature Categories (except VISA and MasterCard), payments w ill be applied first to any Late Charges ow ing, then to the Finance Charge due, then to the outstanding principal balance. As permitted by law, the order in which W e may apply VISA and MasterCard payments is at Our discretion. Any unpaid portion of the Finance Charge will be paid by subsequent payments and w ill not be added to Your principal balance. You understand that any delay in the repayment of Your unpaid balance will increase Your periodic Finance Charges and any acceleration in the repayment of Your unpaid balance will decrease Your periodic Finance Charges. R eadyLine Minim um Paym ents will be an amount equal to 3.00% of Your new unpaid ReadyLine balance at the end of each billing cycle, subject to the lesser of $20.00 or Your balance, plus any portion of the Minimum Payments shown on prior statement(s) which remains unpaid, plus any amount that exceeds Your approv ed Credit Limit. S tretch Pay Line of Credit Minim um Payments will be an amount equal to all outstanding principal together with accrued but unpaid Finance Charges at the end of each billing cycle. Personal Property Secured, Share Secured-Standard, S hare Certificate Secured, and Signature Minim um Monthly Payments will be disclosed to You at the time of each advance on a separate page titled "Credit Line Account Advance Request and S ecurity Agreement". F irst Time User/Student VISA, VISA Platinum, S hare Secured VISA, First Time User/Student MasterCard, MasterCard Platinum and S hare Secured MasterCard Minimum Payments will be an amount equal to 3.00% of Your new unpaid F irst Time User/Student VIS A, VISA Platinum, Share Secured VISA, First Time User/Student MasterCard, MasterCard Platinum or S hare Secured MasterCard balance at the end of each billing cy cle, subject to the lesser of $25.00 or Your balance, plus any portion of the Minimum Payments shown on prior statem ent(s) w hich remains unpaid, plus any amount that exceeds Your approved Credit Limit.

Page 1 of 3 pages

OTBS 016Web WRIT (10/07)

You may, by separate agreement, authorize Us to charge Your pay ment directly to Your Share or Share Draft Account.

Advance Request And Security Agreement" which We have included with and made a part of this Agreem ent.

LATE CHARGE (EXCEPT FOR VISA AND MAS TERCARD). If Your pay ment is 10 or more days late, You w ill be charged 5.00% of the payment due.

OVERDRAFT PROTECTION. We may transfer funds in the amount necessary (or in such increm ents as W e may from time to time determ ine) to Your Share Draft Account by an advance on Ready Line Feature Category, subject to this prov ision, to clear any Overdraft on Your Share Draft Account. Whether or not such transfers occur will be controlled by this Agreement. In any event, You hold Us harmless for any and all liability which might otherwise arise if the transfer does not occur. Ov erdraft Protection autom atically ceases if this Agreement is ever cancelled or terminated or Your Account is in default.

OTHER FEES AND CHARGES (EXCEPT FOR VIS A AND MAS TERCARD). For all Feature Categories (except VISA and MasterCard), You will be charged a $75 FINANCE CHARGE each time You request and W e agree to lower the periodic rate and corresponding Annual Percentage Rate applicable to such Feature Category. READYLINE LATE PAYMENT ANNUAL PERCENTAGE R ATE. If Your ReadyLine Feature Category is ev er 30 or more days past due twice in any six-consecutive-month period, the Daily Periodic Rate applicable to Your entire balance ex isting at that time and in the future w ill imm ediately increase to 0.049315% (corresponding ANNUAL PERCENTAGE RATE 18.00% ). STRETCH PAY LINE OF CREDIT ANNUAL MEMBERSHIP FEE. Stretch Pay Line of Credit Accountholders with approved Credit Limits of $250.00 will be charged a $35 Annual Membership Fee for continued participation in the Stretch Pay Line of Credit program. Stretch Pay Line of Credit Accountholders with approved Credit Limits of $500.00 will be charged a $70 Annual Membership Fee for continued participation in the Stretch Pay Line of Credit program. This fee is required each year to continue credit availability whether or not You use Your Account throughout the year. FINANCE CHARGES ( EXCEPT FOR VISA AND MASTER CARD). A Finance Charge will be assessed on any unpaid principal balance for each Feature Category of Your Account for the period such balance is outstanding. Balances change each tim e advances are made, payments are made or credits given under any Feature Category. The Finance Charge begins to accrue on the date of each advance and there is no grace period. HOW TO DETERMINE THE FINANCE CHARGE (EXCEPT FOR VIS A AND MASTERCARD). For all Feature Categories (Except for VISA and MasterCard), the Finance Charge is determined by multiplying Your unpaid balance at the close of each day in the billing cycle being accounted for by the applicable Daily Periodic Rate. The unpaid balance is the balance each day after payments, credits, and unpaid Finance Charges to that balance have been subtracted and any new advances, insurance premiums or other charges hav e been added to Your unpaid balance. These daily Finance Charges are then added together and the sum is the amount of the Finance Charge owed for the Feature Category being accounted for. The total Finance Charge You owe on Your Account for each billing cycle is the sum of all the Finance Charges due for all applicable F eature Categories. VISA AND MASTERCARD F INANCE CHARGES. In the case of any transactions under Your First Time User/Student VISA, VISA Platinum, Share Secured VISA, First Time User/Student MasterCard, MasterCard Platinum or Share Secured MasterCard Feature Categories, the balances subject to the periodic Finance Charge are the average daily transactions balances outstanding during the month (new and prev ious). To get the average daily balance, We take the beginning balance of Your Account each day, add any new purchases, cash advances, insurance premiums, debit adjustments or other charges and subtract any payments, credits and unpaid Finance Charges. This giv es Us the daily balance. Then, We add up all the daily balances for the billing cycle and divide them by the num ber of days in the billing cycle. The Finance Charge for a billing cycle is com puted by multiplying the average daily balance subject to a Finance Charge by the Monthly Periodic Rate. You can av oid Finance Charges on purchases by pay ing the full amount of the entire balance owed each month within 25 days of Your statement closing date. Otherwise, the new balance of purchases, and subsequent purchases from the date they are posted to Your Account, will be subject to a Finance Charge. Cash advances are always subject to a Finance Charge from the later of the date they are posted to Your Account or from the first day of the billing cycle in which the cash advance is posted to Your Account. VARIABLE RATE (EXCEPT SHARE SECURED-STANDARD). If Your F eature Category is subject to a Variable Rate, advances are subject to a Variable Rate w hich is based on the highest 26-Week United States Treasury Bill Rate as published in the Money Rates section of The Wall Street Journal in effect on the day that any introductory rate period expires, and subsequently, on the last day of each calendar quarter of each year, rounded to the nearest .10% ("Index") plus Our Margin. The Index plus the Margin equals the Interest Rate. Changes in the Index w ill cause changes in the Interest Rate on the day that any introductory rate period expires, and subsequently, on the first day of the month imm ediately following any such change in the index. Increases or decreases in the Interest Rate w ill cause like increases or decreases in the Finance Charge and will affect the number of Your regularly scheduled paym ents. Other than the max imum and minimum Interest Rates that can apply at any time, Your Interest Rate will never increase or decrease by more than 2.00 percentage points on any change date nor more than 8.00 percentage points during any tw elve consecutive month period. Your Interest R ate will never be greater than the lesser of 25.00% or the Margin plus16.00%, nor less than the greater of 5.00% or the Margin plus 5.00%, and will apply to Your remaining principal balance. SHARE SECURED STANDARD - VARIABLE RATE. Share Secured Standard advances are subject to a Variable Rate which is based on the highest Dividend Rate being paid at the credit union in effect on the the last day of each month ("Index") plus Our Margin. The Index plus the Margin equals the Interest Rate. Changes in the Index w ill cause changes in the Interest Rate on the first day of the month imm ediately follow ing any such change in the Index. Increases or decreases in the Interest Rate w ill cause like increases or decreases in the Finance Charge and will affect the number of Your regularly scheduled payments. Your Interest Rate will never be greater than 25.00% nor less than 3.00% and will apply to Your remaining principal balance. For the applicable Index , Margin, Daily or Monthly Periodic Rates and corresponding Annual Percentage Rates for all Feature Categories, refer to the separate page titled Additional Disclosure - Federal Truth-In-Lending Act" and/or "Credit Line Account Copyright Oak Tree Business Systems, Inc., 2005-2007. All Rights Reserved.

PERIO DIC STATEMENTS. On a regular basis, You w ill receive a statem ent showing all transactions on Your Account including am ounts paid and borrowed since Your last statement. If We have issued You a Credit Card, We will mail You a statement each month in which there is a debit or credit balance or when a Finance Charge is imposed. W e need not send You a statement if W e feel Your Account is uncollectible or if We have started collection proceedings against You because You defaulted. Each statem ent is deemed to be a correct statem ent of account unless You establish a billing error pursuant to the Federal Truth-In-Lending Act. OUR RESPONSIBILITIES TO HONOR CONVENIENCE CHECKS . We are under no obligation to honor Your Convenience Checks if: (1) by paying a Convenience Check, You would exceed Your Credit Limit; (2) Your Cards or Convenience Checks have been reported lost or stolen; (3) Your Account has been cancelled or has expired. If a postdated Convenience Check is paid and, as a result, any other Convenience Check is returned unpaid, We are not responsible for any resulting loss or liability . DEFAULT. You will be in default if: (a) You do not make any paym ent or perform any obligation under this Agreem ent, or any other agreement that You may have with Us; or (b) You should die, become involved in any insolvency , receivership or custodial proceeding brought by or against You; or (c) You hav e made a false or misleading statement in Your credit application and/or in Your representations to Us while You owe m oney on Your Account; or (d) A judgment or tax lien should be filed against You or any attachment or garnishment should be issued against any of Your property or rights, specifically including any one starting an action or proceeding to seize any of Your funds on deposit with Us; and/or (e) We should, in good faith, believe Your ability to repay Your indebtedness hereunder is or soon will be impaired, time being of the very essence. Upon any occurrence of default, We may, to the extent permitted by law, cancel Your rights under this Agreement, require the return of all access devices and declare the entire balance of every Feature Category of Your Account im mediately due and payable, without prior notice or demand. If Your entire Account balance is not then paid immediately upon default, and if permitted by law, the collateral shall be voluntarily surrendered to the Credit Union at a time and place acceptable to it. If this is not done, to the extent perm itted by law, the Credit Union may enter the premises where the collateral is located and take possession of it and the Credit Union may assert the defense of a superior right of possession as the holder of a security interest to any offense of alleged wrongful taking and conversion. The Credit Union may sell or dispose of the collateral in any manner permitted by law, and any resulting deficiency on Your Account shall be imm ediately paid to the Credit Union. COLLECTION COSTS. In the event collection efforts are required to obtain paym ent on this Account, to the extent permitted by law, You agree to pay all court costs, priv ate process server fees, investigation fees or other costs incurred in collection and reasonable attorney fees incurred in the course of collecting any amounts owed under this Agreement or in the recovery of any collateral. ENFORCEMENT. We do not lose Our rights under this or any related agreement if We delay enforcing them. W e can accept late payments, partial payments or any other payments, even if they are marked "paid in full" without losing any of Our rights under this Agreement. If any provision of this or any related agreement is determined to be unenforceable or invalid, all other provisions remain in full force and effect. NOTIFICATION OF ADDRESS CHANGE. You will notify Us promptly if You move or otherwise have a change of address. CHANGE IN TERMS. W e may change the terms of this Agreement by mailing or delivering to You w ritten notice of the changes as prescribed by the Federal Truth-In-Lending Act. To the extent permitted by law , the right to change the terms of this Agreement includes, but is not limited to, the right to change the periodic rate applicable to Your unpaid balance and/or future advances. PROPERTY INSURANCE. You agree to insure the collateral described in any Credit Line Account Advance Request and Security Agreement against fire and other hazards, with a policy as specified by Us, in the am ount and for the period required by Us, w ith Us named as loss payee for Our protection. You may purchase the insurance from any insurer You want, but We have the right not to accept the insurer for reasonable cause. You agree to deliver satisfactory evidence of the insurance policy to Us within any time period specified in any notice from Us or on Our behalf. Unless You provide evidence of the insurance coverage required by Your Agreem ent with Us, W e may purchase insurance at Your expense to protect Our interests in the collateral. If W e do purchase insurance, You understand that We may obtain 100% coverage with no deductible. This insurance may, but need not, protect Your interests. The coverage that We purchase may not pay any claim that You make or any claim that is made against You in connection with the collateral. You may later cancel any insurance purchased by Us, but only after providing evidence that You have obtained insurance as required by this Agreem ent. If We purchase insurance for the collateral, You will be responsible

Page 2 of 3 pages

Payday Lending: A REAL Solutions速 Implementation Guide

OTBS 016Web WRIT (10/07)

for the costs of that insurance, including the insurance premiums, interest and other charges W e may impose in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance m ay be added to Your total outstanding balance or obligation. The costs of the insurance may be more than the cost of insurance You may be able to obtain on Your own. In any case, W e have the authority to obtain, adjust, settle or cancel insurance and may endorse any party's name on any draft. If w e obtain any necessary insurance, Your payment may be increased and/or We may demand that You pay the cost in a single lump sum. CREDIT INSUR ANCE. Credit insuranc e is not required for any ex tension of credit under this Agreeme nt. However, You may purchase any credit insurance available through Us and have the premiums a dde d to Your outstanding bala nce. If You ele ct to do so, You will be giv en the necessary disclosures and doc uments separate ly. INTEGRATED DOCUMENTS. Any separate sheet of paper labeled "Additional Disclosure - Federal Truth-In-Lending Act", "Additional Disclosure" and/or "Credit Line Account Advance Request and Security Agreement" which is delivered together with this Agreem ent or at a later date becomes an integrated part of this Agreement and Disclosure. CONSENT TO AGREEMENT. You acknowledge receipt of a copy of this Agreement. By signing the application; or by using Your Account or any Account access device; or by authorizing another to use Your Account, You agree to and accept its term s. UPDATING AND DISCLOSING FINANCIAL INFORMATION. You will provide facts

to update information contained in Your original Account application or other financial information related to You, at Our request. You also agree that We may, from time to time, as We deem necessary, make inquiries pertaining to Your employment, credit standing and financial responsibility in accordance with applicable laws and regulations. You further agree that We may give information about the status and payment history of Your Account to consumer credit reporting agencies, a prospective employer or insurer, or a state or federal licensing agency having any apparent legitimate business need for such information. TERMINATION. Either You or We may cancel Your Account or any particular Feature Category of Your Account, at any time, whether or not You are in default. You will, in any case, remain liable to pay any unpaid balances according to the terms of Your Account. GO VERNING LAW. This Agreement is controlled and gov erned by the laws of the State of Ohio except to the extent that such laws are inconsistent with controlling federal law.

SPECIFIC TERMS APPLICABLE TO YOUR FIRST TIME USER/STUDENT VISA, VISA PLATINUM, SHARE SECURED VISA, FIRST TIME USER/STUDENT MASTERCARD, MASTERCARD PLATINUM AND SHARE SECURED MASTERCARD CREDIT CARDS USE OF YOUR CARD. You may use Your Card to buy goods and services in any place that it is honored and to get cash advances at participating financial institutions. You agree not to use Your Card for illegal transactions including, but not limited to, advances made for the purpose of gambling and/or w agering where such practices are in violation of applicable state and/or federal law. EFFECT OF AGR EEMENT. Even though the sales, cash advance, credit or other slips You may sign or receive when using Your Card contain terms, this Agreement is the contract which solely applies to all transactions involving the Card. UNAUTHORIZED USE. You m ay be liable for the unauthorized use of Your Card. You w ill not be liable for the unauthorized use that occurs after You notify Us of the loss, theft, or possible unauthorized use by calling Us at the telephone number shown in this Agreement or by writing to Us at the address shown in this Agreement. In any case, Your liability will not exceed $50. REFUSAL TO HONOR CARDS OR CONVENIENCE CHECKS. We are not liable for

the refusal or inability of merchants, financial institutions and others to accept the Cards or Convenience Checks, or electronic terminals to honor the Cards or complete a Card withdrawal, or for their retention of the Cards or Convenience Checks. FOREIGN TRANSACTIONS. For transactions initiated in foreign currencies, the exchange rate between the transaction currency and the billing currency (U.S. dollars) will be: (a) a rate selected by VISA and/or MasterCard, as is applicable, from the range of rates available in wholesale currency markets for the applicable central processing date, which rate may vary from the rate VISA or MasterCard itself receives; or (b) the government-mandated rate in effect for the applicable central processing date. For transactions involving Your VISA Card, You w ill be charged 1.00% calculated on the final settlement amount. For transactions involving Your MasterCard Card, You will be charged 8/10th of 1.00% calculated on the final settlem ent amount for transactions that are initiated in foreign countries, and if Your transaction is also initiated in a foreign currency You w ill be charged an additional 2/ 10th of 1.00% calculated on the final converted settlement amount. TRANSACTION SLIPS. Your monthly statement will identify that m erchant, electronic terminal or financial institution at w hich transactions w ere made, but sales, cash advances, credit or other slips cannot be returned with the statement.

Payday Lending: A REAL Solutions速 Implementation Guide

LATE CHARGE. If Your payment is five or more days late, You will be charged $20. OTHER FEES AND CHARGES. You will be charged the following fees associated with the use of Your Card: (a) $25 for any check (or other negotiable instrument used for payment) w hich is returned unpaid; and (b) $20 for each billing cycle during which You exceed Your Credit Limit. LATE PAYMENT ANNUAL PER CENTAGE RATE. If Your VISA or MasterCard Feature Category is ever 30 or more days past due twice in any six consecutive month period, the Monthly Periodic Rate applicable to Your entire balance existing at that tim e and in the future will immediately increase to 1.50% (corresponding ANNUAL PERCENTAGE RATE 18.00%). LOST CARDS OR CONVENIENCE CHECKS. To report lost or stolen Credit Cards or Convenience Checks, You will immediately call Us at or w rite to Us at the address shown in this Agreement. CREDITS. If a merchant who honors Your Card gives You credit for returns or adjustm ents, they will do so by sending Us a slip which will be posted to Your Account. If Your credits and payments exceed what You owe Us, We will hold and apply this credit against future purchases and cash advances, or if it is $1.00 or more refund it on Your written request or automatically deposit it to Your Share Account after six months.

YOUR BILLING RIGHTS KEEP THIS NOTICE FOR FUTURE USE This notice contains important inform ation responsibilities under the Fair Credit Billing Act.

about

Your

rights

and

Our

NOTIFY US IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR STATEMENT If You think Your statement is wrong, or if You need more information about a transaction on Your statement, write Us on a separate sheet, at Our address shown in this Agreement. Write to Us as soon as possible. We must hear from You no later than 60 days after We sent You the first statement on which the error or problem appeared. You can telephone Us, but doing so will not preserve Your rights. In Your letter, give Us the following information: -Your Nam e and Account number. -Dollar amount of the suspected error. -Describe the error and explain, if You can, why You believ e there is an error. If You need more information, describe the item You are not sure about. If You have authorized Us to pay Your bill automatically from Your Share or Share Draft Account, You can stop the payment on any amount You think is wrong. To stop the payment, Your letter must reach Us three business days before the automatic payment is scheduled to occur.

YOUR RIGHTS AND OUR RESPONSIBILITIES AFTER WE RECEIVE YOUR WRITTEN NOTICE We must acknowledge Your letter within 30 days, unless We have corrected the error by then. Within 90 days, W e must either correct the error or ex plain why We believe the statement is correct. After We receive Your letter, We cannot try to collect any amount You question, or report You as delinquent. W e can continue to bill You for the amount You question, including Finance Charges, and We can apply any unpaid amount against Your Credit Limit. You do not hav e to pay any questioned amount while We are investigating, but You are still obligated to pay the parts of Your statement that are not in question. If We find that We made a mistake on Your statement, You will not have to pay any Finance Charges related to any questioned am ount. If We didn't m ake a mistake, You may have to pay F inance Charges, and You will have to make up any missed payments on the questioned amount. In either case, W e will send You a statement of the amount You owe and the date that it is due. If You fail to pay the amount that We think You owe, We may report You as delinquent. However, if Our explanation does not satisfy You and You write to Us within 10 days telling Us that You still refuse to pay, We must tell anyone We reported You to that You have a question about Your statement and, W e must tell You the name of anyone We reported You to. W e must tell anyone We reported You to that the matter has been settled between Us when it finally is. If We don't follow these rules, We can't collect the first $50 of the questioned amount, even if Your statement is correct.

SPECIAL RULE FOR CREDIT CARD PURCHASES If You have a problem with the quality of property or services that You purchased with a Credit Card, and You have tried in good faith to correct the problem with the merchant, You may hav e the right not to pay the remaining amount due on the property or services. There are two limitations on this right: a. You must have made the purchase in Your home state, or, if not within Your home state, within 100 miles of Your current m ailing address; and b. The purchase price must have been more than $50. These limitations do not apply if W e ow n or operate the merchant, or if We m ailed You the advertisement for the property or services.

Page 3 of 3 pages

OTBS 016Web WRIT (10/07)

Exhibit 3: StretchPay Creditorial

February 2008

StretchPay Program Saved Ohioans Millions in 2007 A Proven Alternative to Payday Lending Paulette Strolia-Davis was feeling the financial pinch and her next paycheck was still days away. Instead of resorting to expensive payday lenders that charge triple-digit loan rates, she turned to Day Air Credit Union in Kettering for a StretchPay loan. The “affordable and reasonable” credit union salary advance alternative helped her family pay a flurry of bills coming due.

The credit union alternative to traditional payday lending, StretchPay, saved members of thirty-one credit unions more than $3 million in 2007. Twenty-seven of the credit unions that offer StretchPay are located in Ohio. Ohio credit unions understand the need for short-term lending exists, and they are providing their members with a consumer friendly, cost-effective solution. Collectively, credit unions offering StretchPay made 64,400 salary advance loans last year totaling nearly $25 million. They collected $476,000 in fees and $187,000 in interest, at an annual percentage rate (APR) of 18%. If credit union members had borrowed the same amount of money at traditional payday lenders — where consumers are generally charged $15 per $100 borrowed and up to 391% APR by payday lenders licensed in Ohio — they would have paid more than $3.7 million in interest and fees. StretchPay is a lower-cost alternative for credit union members in need of small cash advances for short terms. A credit union charges an interest rate of 18% APR, along with an annual fee of $35, for a $250 StretchPay loan. The entire balance must be repaid by the borrower within 30 days before the member can take a new advance. Some credit unions also offer $500 StretchPay loans at 18% APR, with an annual fee of $70.

Education is the Key What further separates StretchPay from traditional payday lending is the financial education component. In addition to the loan, members receive financial education and counseling from their credit union to help them make wise, long-term financial decisions and break free of the payday lending debt treadmill. Credit unions also report loan payments to the credit bureaus, allowing StretchPay members to build upon their credit standing. Credit union members have already used the financial education offered to help them achieve their dreams and get on a stable fi-

Ohio Payday Lending Snapshot n The average borrower takes out 12.6 loans per year. n Average amount loaned to payday lending consumers is $328. n The average APR offered by traditional lenders is 391%. n Borrowers pay more than $318 million in fees annually. Source: Ohio Coalition for Responsible Lending

nancial path. A long-time teacher and StretchPay borrower who had never owned a home, worked one-on-one with a financial counselor at her credit union and attended home-buying seminars offered by the credit union. In just 20 months she became a homeowner. Another credit union member who wanted to pay off her credit cards began using StretchPay loans to help offset her debt.

StretchPay saves credit union members more than $3 million in 2007. n 31 credit unions made 64,400 StretchPay loans totaling $25 million. n Ohio is home to 27 of the 31 credit unions offering StretchPay loans. n StretchPay offers loans at an 18% APR. n Members would have paid $3.7 million in fees at traditional payday lenders.

She was taught by her credit union how to limit her expenses, create a monthly budget, and is now breaking free of the payday lending cycle of debt thanks to StretchPay and financial education from her credit union.

Who can Join? Most Ohioans are eligible for membership in at least one credit union. While not all credit unions offer StretchPay, similar shortterm lending programs are available at credit unions throughout the state. Credit unions exist to serve their more than 2.6 million members in Ohio and continue to work to find affordable and accessible solutions to member’s financial needs. For more information about the credit union StretchPay program, please contact the Ohio Credit Union League’s John Florian,Vice President of Government Affairs, or John Kozlowski, General Counsel, at 614-336-2894 or 800-486-2917. The purpose of A Creditorial is to inform public officials about financial issues of importance to Ohioans today.

Ohio Credit Union League • 5815 Wall Street • Dublin, Ohio 43017 • 800-486-2917 • www.OhioCreditUnions.org Payday Lending: A REAL Solutions® Implementation Guide

Model 2: Payday Alternative Loan (PAL)

Missoula Federal Credit Union 3600 Brooks St. Missoula, MT 59801

www.missoulafcu.org Assets:

$282 million

Members: 42,766 Contact:

Julie Meister, Branch Manager (406) 523-3323 juliem@missoulafcu.org

Missoula Federal Credit Union (MFCU) launched its Payday Alternative Loan (PAL) program on December 1, 2007. Loan Features:  Open-end  $100 minimum advance; $500 maximum  Cannot exceed ½ monthly income  18% APR  No loan fee  90-day loan term, with periodic payments  Loan must be paid in full prior to additional advances  Loan can be rolled over twice in 12-month period  “Draw period” for loan is 12 months from the date of the first advance  New application required every 12 months  Board set aside $500,000 for PAL program Underwriting Criteria:  Must be a member for at least 90 days  90 days continuous employment with verification of income  Member in good standing Procedures: A short application is completed with each advance. Advances are not made at the teller line, but rather with a financial service officer (FSO). The purpose is to maintain a relationship with the member in the event financial struggles continue. No financial education is required as part of the program. However, after the third or fourth advance, FSOs provide “soft” counseling, by asking if there are budgeting or financial problems with which they can help. Payday Lending: A REAL Solutions® Implementation Guide

Results through October 2008:  792 PALs advanced totaling $325,500  341 members have used the product; 195 have used it more than once  An average of 72 loans are originated per month.  Average PAL loan amount: $411  5 loans have been charged off totaling $1,893, or .6% of total advances  PAL delinquency as of October 2008:  30 days or less 31 loans  31 – 60 days 6 loans  61 – 90 days 9 loans  91 – 120 days 3 loans  121+ days 3 loans Marketing Procedures:  No online or external marketing is done.  Front line and MSRs watch for signs of PDL risk, such as credit issues or requests for counter checks (a flag for PDL usage) and cross-sell PAL program.  MFCU uses Touche’ software which tracks members’ transaction history, including the number of calls coming in to verify funds. Employees can check this history to determine if the member is a good candidate for PAL. Profile of MFCU PAL user:  Age  18-25 years 21.5%  26-35 years 28.5%  36-45 years 20.4%  46-55 years 17.7%  56-65 years 8.6%  66+ years 2.7%  Income  < $20,000  $20,000 - $29,999  $30,000 - $39,999  $40,000 - $49,999  $50,000 - $59,999  > $60,000  Homeownership  Own 70.2%  Rent 29.8%

34.3% 19.9% 12.6% 12.6% 12.6% 9.1%

Collection Activity Procedures: Once the loan is over 30 days past due, Accounts Control attempts two contacts to collect payment. If there is no response from the member, the loan is turned over to an outside collection agency. The loans are generally charged off after 120 days.

Payday Lending: A REAL Solutions® Implementation Guide

Model 3: UCU Cash

United Credit Union P.O. Box 858 Mexico, MO 65265

www.unitedcu.org Assets:

$101 million

Members: 15,734 Contact:

Donna Evans, VP Lending (573) 581-8651, ext. 130 dsevans@unitedcu.org

United Credit Union’s UCU Cash Payday Loan Alternative is an open-end loan that can be advanced in amounts from a minimum of $100 to a maximum of $500. The tagline used to promote the UCU Cash product is “A REAL Credit Union Solution.” Loan Features: Tier 1: 26% rate + 10% annual fee ($50) = 36% total  Direct deposit required  Payment due with each direct deposit Tier 2: 26% rate + $40 annual fee  Direct deposit required  Direct deposit of $5/pay or $10/mo to savings Note: Put hold on suffix for 60 days. If member has at least 60 days worth of savings in that suffix, they qualify for discount again the following year. Otherwise, next year fee will be $50. Tier 3: 36% rate + 10% annual fee ($50) = 46% total  No direct deposit required  Payment due on each pay period Procedures:  Borrower completes Application for UCU Cash. If joint applicants, both complete an application.  For each cash advance, members complete Request for UCU Cash Advance and give to tellers.  Loan suffix: 14  Loan type code: PD  Security code - P  Payment amount is based on $500 (even if taking less so it won’t have to be adjusted).  Payment begins with next pay period.  Length of loan: 60 days maximum. Payday Lending: A REAL Solutions® Implementation Guide

    

Balance must be paid in full before another advance is taken. No limit on number of advances as long as paid in full (PIF) before each advance. Can take advance over phone or at teller counter. No Internet, TLC or ATM advances. Number of payment skips: maximum 3 skips in a 12-month period. Write skips in notes to track. Leave courtesy pay as is. Late fee: 5% of payment with maximum fee of $15.

Underwriting Criteria:  Minimum length of membership: 60 days  Length of employment: six months  Minimum age: 18  Minimum income: $1,000/month gross  Proof of residence: * Pay check stub (<30 days old) *Verify address on check stub with address on computer, if doesn’t match, get utility bill, etc.  Member can’t be delinquent on existing loans or have negative share account > 15 days old. Results for 12 months as of October, 2008:  225 open loans  $89,450 in open LOCs with $65,000 in outstanding balances  Interest income: $17,000  Fee income: $11,550  Late fee income: $1,560  Charge-offs: $8,300  Charge-offs as a percent of average outstanding balances: 12.8%  Time to do cash advance: 10 minutes Loan Note Used: CUNA Mutual Group’s LOANLINER® unsecured form. Sample Forms Included:  Application for UCU Cash (Exhibit 1)  Request for UCU Cash Advance (Exhibit 2)  UCU Cash Checklist (Exhibit 3)

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Application for UCU Cash Account Number_________________________________________________________ Member Name___________________________________________________________ E-Mail Address:_________________________________________________________ Street (Physical Address)__________________________________________________ City/State/ZIP___________________________________________________________ Home Phone_______________________

Cell Phone__________________________

Social Sec. Number_________________

Date of Birth________________________

Employer_______________________________________________________________ Work Phone:_______________________ Date Hired __________________________ Monthly gross income: ______________ Date of Next Payday _________________ Pay Frequency: _____Weekly _______Bi-Wkly______Semi-Mo.______Monthly

PLEASE READ BEFORE SIGNING 1. I understand I will be charged a $50 non-refundable annual fee as long as this account line is open. To avoid the annual fee, this account line must be closed prior to the Anniversary date of the account. 2. I understand United CU may obtain a credit report or something comparable for this or any subsequent advances. 3. I authorize the withdrawal of payment in full from my account should this loan become delinquent.

Member Signature_____________________________________ Date_____________

Approved/Denied by:___________________________________ Date_____________

Payday Lending: A REAL Solutions速 Implementation Guide

Exhibit 2: Request for UCU Cash Advance Acct Number:__________________________________________________ Name:________________________________________________________ Home Phone:__________________________________________________ Cell Phone:____________________________________________________ Employer:_____________________________________________________ Employer Phone:_______________________________________________

Loan must have 0 balance to take new advance ALL info must be completed and must be employed to take advance.

Payday Lending: A REAL Solutions速 Implementation Guide

Exhibit 3: UCU Cash Checklist _______ Length of membership – 60 days _______ Length of employment – 6 months _______ 18 yrs old _______ Income $1000 or greater per month _______ Paycheck stub < 30 days old – verify address on computer. If different, verify with electric bill, etc. _______ No delinquency/OD’s on current UCU acct > 15 days

Set-up _______ Loan limit $100 - $500 _______ Length of loan 60 days _______ Pmt based on limit (not advance amt) _______ Pmt begins with next pay period

Payment on $500 limit Monthly pmt - $262/mo Semi-mo/Bi-wkly pmt - $130/pay Weekly pmt - $65/pay

Payday Lending: A REAL Solutions® Implementation Guide

Model 4: Paycheck Today Line of Credit

Northwest Community Credit Union P.O. Box 70225 Eugene, OR 97401

www.nwcu.com Assets:

$624 million

Members: 68,893 Contact:

Holli True, Branch Support (541) 744-9754 htrue@nwcu.com

Northwest Community Credit Union (NWCU) revised and re-launched its Paycheck Today Line of Credit (LOC) in May 2008. Loan Features:  Open-end  $300 line of credit  18% APR  Draw period of one year  $15 application fee  Outstanding balance repaid in full on the 5th day of each month  Can access line of credit through touch-tone teller, online banking, overdraft protection, or at any branch location  This product is used as a tool to educate members on how to improve their financial situation and overall credit rating Underwriting Criteria:  Member must be a C,D or E credit tier to be eligible; A+, A and B tier members are put into mainstream products  Member cannot have an open credit limit account with NWCU to qualify for this product  Member in good standing  No open bankruptcies or garnishments  Collections sends an email to Loan Advisor if they receive a garnishment or if a member files bankruptcy Procedures: Members can apply with a Member Service Specialist (MSS) either by phone or in person. The NWCU Underwriting Team reviews applications. If a member is over-qualified for product, the credit Payday Lending: A REAL Solutions® Implementation Guide

union’s loan software has an automatic up-sell feature that approves the member for a mainstream line of credit. Different guidelines apply for the standard LOC and the MSS explains how this loan is structured. Annual Re-qualification: The Loan Advisory Team reviews every Paycheck Today LOC loan on an annual basis.  If the member’s credit score increases to a C tier or above, the member is bumped into a mainstream LOC  The Paycheck Today LOC account terminates if the member isn’t bumped to a mainstream LOC and the member must reapply for a Paycheck Today LOC. Results as of November 2008:  Number of outstanding loans: 35  Total number of borrowers with LOCs: 50  Outstanding loan balances: $9,100  Average outstanding loan balance: $228  Total application fees collected (through first seven months): $800  No losses to date; 1 loan is 30 days delinquent Collection Activity Procedures: All loans are due on the 5th day of the month. If payment remains unpaid on day six, the LOC is frozen and the member cannot access the account. If the payment is received by the 15th of the month, the loan limit is reinstated. When the loan is five days past due, telephone contact is made and the member is warned that payment must be received by the 15th or the loan will be permanently terminated. Marketing: Paycheck Today is listed as a loan option on NWCU’s Web site. When members click on that option, they are provided a comparison of Paycheck Today’s APR and fees with those of The Cash Store and Check N’Go. They are also provided information as to why Paycheck Today is a better choice and a link is provided for financial counseling through “Balance.” Employees are also trained on how to listen to members’ needs and will promote the loan if applicable. Sample Forms Included:  Policies & Procedures for Paycheck Today Line of Credit (Exhibit 1)  Paycheck Today Web Site Information (Exhibit 2)

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Paycheck Today Line of Credit Product Features Qualifications Available Advance Amounts Loan Input Automatic Up-Sell Balance When is a Paycheck Today LOC closed? Closing a Paycheck Today LOC- Who does what? Annual Re-Qualification Employee Requests PRODUCT FEATURES: 1) Limited input into APPRO & Core 2) Credit and Security Agreement and Disbursement Receipt are the only required documents 3) Low interest rate of 18% 4) Advances may be processed by the member online, via Touch Tone Teller, in-branch or over the phone 5) Paycheck Today LOC Loans may be setup as Overdraft Protection 6) 1 year draw period 7) Use this product as a tool for educating our members on how to improve their financial situation and overall credit rating Please Note: When discussing this loan type with the member, ask what the purpose of the loan is for? A Paycheck Today LOC must be paid in full on the 5th of the month, if the member feels he or she will need more than one pay period to payoff the balance, suggest a Personal OneTime Advance instead. Back to Top QUALIFICATIONS: 1) Member must be a C, D or E tier to be eligible. A+, A and B tier members should use mainstream products. 2) No credit limit account currently open with Northwest Community CU to qualify for this product 3) Member must be in good standing 4) No open bankruptcies or garnishments against them a. Collections will send an email to Loan Advisor if they receive a garnishment or if a member files bankruptcy Back to Top

AVAILABLE ADVANCE AMOUNTS: Paycheck Today LOC Loans will only be available in the amount of $300.00. Back to Top Payday Lending: A REAL Solutions速 Implementation Guide

APPLICATION MANAGER LOAN INPUT: The following procedures are those specific to Paycheck Today LOC Loans. For general information on how to fill out the loan application screens, see the General Procedure for Lending. Applications for this product can be found under Line of Credit in APPRO.  The Product Screens for Paycheck Today LOC Loans are Financing and Regulations. o On the Financing Tab, enter the following:  In the Amount Requested field enter $300.00  Click on Pricing, select Yes to accept the Interest Rate of 18%  The Pct. of Amount Requested will automatically set to 100.0000  Do not change this under any circumstances  Do not change this setting under any circumstances  The Monthly Payment will read $300.00  Click on the Insurance Calculator next to the Insurance field. The Insurance Calculator gives you the Credit Life and Credit Disability products. The system will automatically default to Waived. You will need to manually adjust this with each loan as you discuss these products with your member.  Under Credit Life use the drop down to choose the type of insurance desired. Single, Joint, Ineligible, or Waived.  Credit Disability cannot be offered with this loan product and will need to be changed to Ineligible. The loan will not transfer to OSI is Disability is marked any other way.  Click OK. This will load the purchased products and take you back to the main screen.  Overdraft Protection section – There is currently no functionality behind this but it may be used in the future.  The Collateral section of this screen will not be used since these are unsecured products. o On the Regulations Tab, enter the following:  The Loan Information section is where you will enter in the purpose of the loan. Choose from the drop down or type the first letter of the desired purpose. Nothing else needs to be done.  Once you have completed the product screens, follow the General Procedures for Lending to complete the processing of the application Note: A screen will pop up asking you if you want to assign the fees, click no. Fees cannot be assessed in Application Manager on Line of Credit Loans, this has to be applied in Operations Manager. Back to Top OPERATIONS MANAGER In addition to standard Operations Manager Procedures, the following steps must be completed on the Contract Editor LOC Screen:  Set First Payment to the 5th of the month  Next to Term, check the box that reads No Maturity  Add the $15 Loan Application Fee, either Financed or POC Back to Top Payday Lending: A REAL Solutions® Implementation Guide

AUTOMATIC UP-SELL A new feature available with APPRO is an Automatic Up-Sell for members who are overqualified for a Paycheck Today LOC because their credit score it too high. The system will automatically replace the Paycheck Today LOC with a $500 Fixed Rate Line of Credit. Some of the fields within the application will be automatically updated to coincide with a Line of Credit. The following steps need to be completed by the MSS:  Click the radio-button next to Pct. of Amount Requested.  In the Monthly Payment field enter $20.00, the minimum amount due on a LOC. Back to Top BALANCE:   

A Balance Handout must be signed by the member when a new Paycheck Today LOC Loan is opened. Explain how Balance can help and what benefits they offer. A Balance Handout will be mailed every 6 months When a Paycheck Today LOC is closed, mail a Balance Handout to the member Back to Top

WHEN IS A PAYCHECK TODAY LOC CLOSED? 1) All Paycheck Today LOC Loans are due in full on the 5th of the month. a. Members will have a 10 day grace period to pay off their loan in full. b. On the 6th of each month, any available Paycheck Today LOC funds will be frozen. i. If a member makes a payment during their 10 day grace period, send an email to Loan Advisor so the funds can be made available c. On the 10th of each month a report will be pulled and the Loan Advisory Team will contact any members with outstanding balances letting them know they have until the 15th to payoff their loan. d. If the balance remains unpaid on the 16th, the limit will be revoked. A $25 late fee will be assessed to the loan. 2) When a member requests for the loan to be closed. 3) When a Paycheck Advance loan has been open for one year. 4) When we receive a garnishment on a member’s account. 5) If an Account Review is performed, it may be closed. Back to Top CLOSING A PAYCHECK TODAY LOC- WHO DOES WHAT? MSS- If a member requests to have their Paycheck Today LOC closed, follow the Closing a Visa or LOC procedures. Send the member an Adverse Action notice and a Balance brochure. Loan Advisory Team- If the member falls delinquent on a Paycheck Today LOC one time in the twelve months; a Loan Advisor may close the loan. They will maintenance the loan and send an Adverse Action notice and a Balance brochure. Back to Top

Payday Lending: A REAL Solutions® Implementation Guide

ANNUAL RE-QUALIFICATION The Loan Advisory Team will review every Paycheck Today LOC loan on an annual basis.  If the member’s credit score increases to a C tier or above, they will be bumped up to a mainstream LOC o $15 loan application fee will not be charged when reviewing  The Paycheck Today LOC account will terminate if the member isn’t bumped to a mainstream product Back to Top EMPLOYEE REQUESTS: Employee will submit an application with either an MSS or online. The request will go through a Credit Manager for approval and will be processed by the Employee Loan Processor. Back to Top

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 2: Paycheck Today Web Site Information Paycheck Today Lines of Credit Our low-cost alternative to payday loan companies Compare some payday loan programs

Program

Interest (APR)

Fee to apply

18.00% *

$15

NWCU's

Paycheck Today Line of Credit

The Cash Store

Check N' Go

up to

520% **

up to

520% **

$20

* Rate quoted as annual percentage rate (APR), effective 5/1/2008, and may change without notice. All loans are subject to approval. Additional restrictions apply. Contact us for more information. ** Source: US Public Research Group, Consumer Federation of America; numbers based on $100 loan over two-week period. APR calculation based on their fees.

Sometimes there's too much month at the end of the paycheck. Our Paycheck Today Line of Credit may be the fair break you've dreamed of. Whether you use it to help you out of a bind or to escape the burden of normal payday loans, our goal is to help you. Unlike the payday loans you'll see on TV, we're not trying to profit on the people who have nowhere else to borrow. And it costs less than bouncing checks.

Payday Lending: A REAL Solutions速 Implementation Guide

Here’s why our Paycheck Today line of credit may be a better choice: 

Fast answer



Low application fee



Low APR



Borrow only what you need, up to $300



Use this line of credit as needed for up to one year



May be setup as Overdraft Protection



No back-to-back schemes



No checklists



No post-dated checks required



Easy access to funds via online, Touch Tone Teller, phone, or in-branch



An ideal way to improve personal finances



Helps build a good credit history



Get your finances on track with the help of Balance

This loan is for members only, so have your member information ready and visit a branch to apply.

Payday Lending: A REAL Solutions® Implementation Guide

Model 5: Better Choice A Credit Union Payday Alternative

Hershey Federal Credit Union 232 Hershey Rd. Hummelstown, PA 17036

www.hersheyfcu.org Assets:

$44.9 million

Members: 6,462 Contact:

Paul Wagner, Loan Manager (717) 533-9174, ext. 121 pwagner@hersheyfcu.org

The Credit Union Better Choice program was developed by the Pennsylvania Credit Union Association (PCUA) with the support of the Pennsylvania Treasury Department and the Pennsylvania Department of Banking. The Association provides marketing support and a fund to help offset loan losses. For more information, visit the Association’s Web site at: www.pacreditunions.com/betterchoice.html. Participation in the program requires credit unions to agree to comply with basic loan features and to report to PCUA with volume and loss information semi-annually. Hershey Federal Credit Union’s (Hershey FCU’s) Better Choice loan program was started in May 2007. Hershey FCU’s Better Choice Loan Features:  Closed-end  Minimum loan amount - $100; Maximum loan amount - $500  90-day maximum term, with weekly, bi-weekly, or monthly payments  $25 application fee – may be added to loan principal  Loan must be paid in full prior to additional advances  10% of loan amount must be deposited into savings; interest paid on savings requirement will be rebated back to members’ savings account upon timely loan payoff Underwriting Criteria:  Must be at least 18 years of age  Be a member in good standing  A credit union member for at least 90 days  Employed by same employer for at least six months, or receiving verifiable fixed income for at least six months  Provide proof of income with each advance  Not in the process of filing for bankruptcy  No minimum credit score is required Payday Lending: A REAL Solutions® Implementation Guide

Procedures: See Better Choice Processing Procedures (Exhibit 1) Results for January through October 2008:  Average number of outstanding loans per month: not tracked  Total number of advances for period: 37  Average $ outstanding balances per month: $3,618  Total $ loans advanced during period: $20,150  Average number of times members use Better Choice loan: 1.5  Average Better Choice loan amount: $545  Total application fees collected (through 10 months): $825  Interest income earned on this portfolio of loans over same period: $527  Over same period, Better Choice losses were a total of $800, with $400 reimbursed from the loss fund and with an additional $246 pending reimbursement.  Better Choice delinquency as of October 2008:  30 days 0  60 days 0  90 days 0 Collection Activity Procedures:  Phone contacts are made when loan is two days past due  Notice is sent after 15 days  Loans are turned over to a collection agency after 30 days Sample Forms Included:  Processing Procedures (Exhibit 1)  Hershey FCU’sBetter Choice Loan Policy (Exhibit 2)  Hershey FCU’s Better Choice Loan Guidelines (Exhibit 3)  Hershey FCU’s Cash Advance Application (Exhibit 4) Additional Better Choice Samples:  Better Choice Sample Brochure http://www.pacreditunions.com/CUBCBrochure.pdf  Better Choice Sample Stuffer http://www.pacreditunions.com/CUBCStuffer.pdf

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Better Choice Processing Procedures 1. Have member complete application and submit supporting documentation a. Collect application fee b. Current pay stub c. Paystub or proof - 6 mos. on job 2. Post application fee and attached receipt to checklist. 3. Print Member inquiry from core system. 4. Verify date of membership (must exceed 90 days) 5. Determine payroll frequency – payment frequency must match 6. Pull credit report – verify no other better choice cash advances elsewhere or open bankruptcy 7. Calculate % of payment to net payroll (can’t exceed 30%) 8. Send to Loan Officer 9. If Loan Officer approved: a. Complete Loan and Security Agreement & Disclosure Statement b. Cash Advance Program Penalties c. Payroll Deduction form (if needed) d. ACH authorization form (if needed) e. Disburse funds to Members account f. Increase minimum balance on share account by 10% of advance amount 10. Review for proper signatures and send member on their way with copies and receipts When Advance has been repaid: 1. Reduce minimum balance required on Share account 2. Refund interest on 10% Savings Requirement

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 2: Hershey FCUâ&#x20AC;&#x2122;s Better Choice Loan Policy Better Choice Cash Advance Program The Better Choice Cash Advance Program is a co-operative-based program developed by the Pennsylvania Credit Union Association to assist credit unions to serve their mission as proconsumer financial co-operatives. The program positions credit unions as an alternative to the growing problem of payday lending activity in Pennsylvania. This program is supported by the Pennsylvania Treasury Department and the Pennsylvania Department of Banking. 1). The credit union agrees to provide short term cash advances in compliance with The Better Choice Cash Advance Program Agreement with the Pennsylvania Credit Union Association. 2). The credit union may limit the amount of advances made available under this program based on risk tolerance.

Who Can Approve

See our Lending Authority Matrix If level 2 or 3 loan officer disagree with level 1 loan officer and want to reject the loan, they must first talk to the member.

Term & Rates

Payday Lending: A REAL SolutionsÂŽ Implementation Guide

Maximum term of 3 months at 18%

Exhibit 3: Better Choice Loan Guidelines The Better Choice Cash Advance Program The Better Choice Cash Advance Program is a co-operative-based program developed by the Pennsylvania Credit Union Association (PCUA) to assist credit unions to serve their mission as pro-consumer financial co-operatives. The program positions credit unions as an alternative to the growing problem of payday lending activity in Pennsylvania. This program is supported by the Pennsylvania Treasury Department and the Pennsylvania Department of Banking. The credit union agrees to provide the following: 1. Short Term Cash Advance Loan a) b) c) d) e) f) g) h) i)

Offer a short-term cash advance loan with a maximum 90-day term. Do not utilize a credit check for approval. Obtain pay stub instead. Minimum loan amount is $300. Maximum loan amount is $500 Monthly payment cannot exceed 30% of monthly net pay. Maximum APR – 18% Application fee - $25 non-refundable Loan must be paid in full prior to other loans being disbursed. Payment by payroll deduction, auto draft or ACH origination only. Applicants must be employed for at least six months with the same employer.

2. Mandatory Savings Deposit 10% of the initial loan amount in a savings account in the member’s name. This amount is added to the loan balance, in addition to the requested loan amount and any application fee being financed. a) Interest paid on the 10% portion placed in savings will be made available to the borrower only when the loan is completely paid back as agreed. b) Prohibit savings withdrawals of the initial $25 deposit AND the 10% placed in the account until the loan is paid in full. 3. Financial Counseling a) After two Better Choice loans within a one year, financial counseling is required and approval for additional Better Choice loans will be decided by the Counselor and Loan Manager. 4. Reporting Requirements to PCUA a) Inform PCUA of the services being offered in conjunction with this program at the onset: i. Loan terms ii. Interest rate iii. Application fee iv. Financial Counseling provider

Payday Lending: A REAL Solutions® Implementation Guide

b) Provide PCUA with the type, pricing, number of transactions, number of participating members, dollar volume and losses for the service as of June 30 and December 31 each year.

5. Collection process a) Send one reminder letter upon initial delinquency occurrence. b) If the reminder letter elicits no response, loan is immediately sent to our collection agency. Prior to submitting to agency, initial deposit of $25 and the10% of the loan proceeds that had been deposited to savings will be withdrawn and applied to the delinquent loan balance.

Payday Lending: A REAL Solutions速 Implementation Guide

Exhibit 4: Cash Advance Application

904 E. Chocolate Ave Hershey, PA 17033 Phone (717) 533-9174 9174 Fax (717)533-5241 www.hersheyfcu.org

BETTER CHOICE - CASH ADVANCE PROGRAM LOAN INFORMATION Amount requested $ _______________(maximum amount is $500.00) Term __________________ (must be paid back within 90 days) Purpose __________________________________________

Applicant Information Name _______________________________________ Address _____________________________________ City_____________________ State______ Zip _______ Years and Months at Address __________________ Date of Birth ________________Social Security No.______________________ Employer______________________________ Employer Phone __________________

Home Phone _________________

Position __________________________ Years & Months on Job _____________ Gross Monthly Wage ______________ (must provide pay stub for proof of income) Other Monthly Income _________________ (provide proof) Driver’ss License ____________________ State _________

Payday Lending: A REAL Solutions® Implementation Guide

Have you ever filed bankruptcy? No ____ Yes ____ Year _______ Do you intend to file Bankruptcy within the next 90 days? ________ Do you currently have a Better Choice Cash Advance or payday loan with another financial institution? No_____ Yes _______ If yes, explanation.

Have you now or have you ever had any Judgments, Garnishments, Legal Proceedings against you? No _____ Yes_____ Explanation:

Disclosures

The fee for this loan is $25.00. This fee must be paid up front before the loan is granted, and the fee is charged regardless of whether or not the loan is approved. 10% of the loan amount will be added to the loan and will be placed on hold in a savings account until the loan is paid in full. The interest rate of this loan will be 18%. The applicant must be a member of the CU for a minimum of 90 days. The applicant must be employed at least six months by the same employer. You as the applicant may only have one Cash Advance Loan or CAP at a time. If we see that you have any other payday loans out there, you will not be eligible to receive any more CAP’s from the Hershey FCU. Your payroll must be direct deposited at a financial institution and the payments for this CAP must be drafted from that account.

SIGNATURE I authorize you to investigate my credit record, to check statements I’ve made, to report your credit experience with me and keep the application. ALL INFORMATION SET FORTH IN THIS APPLICATION IS DECLARED TO BE A TRUE REPRESENTATION OF THE FACTS FOR THE PURPOSE OF ABTAINING THE CREDIT REQUESTED AND ANY WILLFUL MISREPRESENTATION ON THIS APPLICATION COULD RESULT IN CRIMINAL ACTION.

____________________________________ Applicant’s Signature

Payday Lending: A REAL Solutions® Implementation Guide

___________________ Date

THIS SECTION FOR CU USE ONLY On____________________,200__ (I)(We) approved a loan in the amount of $__________and on the condition requested by the above applicant, except as follows (list any changes in amount, terms, or conditions): ___________________________________________________________________________________________

Comments: ___________________________________________________________________ APPROVED BY LOAN OFFICERS: ________________________________________________ If application is rejected – reason for rejection ________________________________________

Signature ________________________________ Date ___________________

Payday Lending: A REAL Solutions® Implementation Guide

Model 6: Payday Alternative Loan (PAL)

Veridian Credit Union 1827 Ansborough Ave. Waterloo, IA 50701

www.veridiancu.org Assets:

$1.4 billion

Members: 150,873 Contact:

Kara Van Wert, Manager of Consumer Lending (319) 287-8202 karalv@veridiancu.org

Veridian Credit Union (Veridian CU) began offering its Payday Alternative Loan (PAL) on March 1, 2007. Loan Features:  Closed-end  Minimum amount: $400; Maximum loan amount: $1,000  ½ of loan amount is deposited into savings account until loan paid in full  6-month term with periodic payments; minimum payment of $20  Rate: 19% with automatic payment; 21% without automatic payment  Application fee: $20  Only one loan at a time  Amount on deposit earns the Member Equity Savings Rate, currently .75% Underwriting Criteria:  Must be at least 18 years of age  Must have direct deposit of payroll or other income, such as Social Security, pension, child support, etc.  Even with direct deposit, member can choose cash payment, but then rate is 21%  Member in good standing  Cannot be delinquent more than 10 days on other Veridian CU loans  Teletrack report is pulled – applicants cannot have paid/unpaid charged-off loans with payday lenders or a pending bankruptcy Procedures:  Application can be by phone, online, or at any branch location seven days a week  Regular loan application is used. Name, address, income, length of employment, debts, etc. are recorded. Payday Lending: A REAL Solutions® Implementation Guide

  

No debt ratio or length of employment is used to determine approval. ½ of loan amount is deposited into a separate savings account under the member’s account number and is placed on a restrictive hold until the loan is paid in full. Application process takes approximately 15 minutes.

Results for January through October 2008:  Total number of advances for period: 2,752  Average outstanding balances per month: $693,000  Total loans advanced during period: $2,504,780  Average PAL amount: $910  Interest income (through 10 months): $98,096  Fee income (through nine months): $50,574 Note: The application fee was implemented on February 1, 2008.  Late fee income (through 10 months): $7,020  PAL losses (through 10 months): $44,432 (1.8% of total loans advanced)  PAL delinquency as of October (November) 2008:  10 – 29 days 52 loans  30 + days 63 loans  Average delinquent loan balance: $557 Collection Activity Procedures:  10 day notice sent; at 30 days a cure notice is sent  A telephone contact is made by a collector at 30 days  After 30 days the PAL is charged off; however collectors may hold loans longer if there is a willingness by the member to make payment arrangements. Marketing the Product: The credit union includes a description of the PAL product on its Web site with a set of frequently asked questions. Other than that, the loan has not been marketed. It has been very successful through word of mouth. Sample Forms Included:  Veridian CU’s loan application (Exhibit 1), noting the $20 fee disclosure  The credit union uses its regular Closed End Note LOANLINER® document for the PAL product, which follows (Exhibit 2), but with these differences:  PAL application fee disclosed at the top left  Late charge wording  In the security section the amount held in savings is noted  On page two, it is noted that $980 is given to the member, with $500 to be deposited to the restrictive savings account. Twenty dollars ($20) is the PAL fee.  Veridian CU’s Web site content comparing its PAL to traditional payday lenders (Exhibit 3)  Information regarding PAL from Veridian CU’s training manual (Exhibit 4)

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Veridian Credit Union Credit Application

Payday Lending: A REAL Solutions速 Implementation Guide

Exhibit 2: Veridian Credit Union Loan and Security Agreement

xxxxxxxxxxx

xxxxxxxxxx

xxxxx

xxxxxxxxxx

jljkljlkjlkjlljljljlkjlklklkjlk xxxxxxxxxxxxxxx

xxxxxxxxxxkj

xxxxxxxxxxxxxxxxxxxxxxxxxx

ixxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxx

Payday Lending: A REAL Solutions速 Implementation Guide

xxxxxxxxxxxx

xxxxxx

kjjkjlkjlllklkjkljlkjlk

Payday Lending: A REAL Solutions速 Implementation Guide

xxxxxxxxxxx

Payday Lending: A REAL Solutions速 Implementation Guide

xxxxxxxxxxl

Veridian PAL

Page 1 of 1

Exhibit 3: Veridian Credit Union’s PAL Web Site

Site Search: May 21, 2008

Security Alert: Please be aware of this phishing email. Learn more...

Vehicles Other Loans Payday Alternative Loan Holiday Loan Student Loan Alternative Credit Program

Payday Alternative Loans At Veridian, we are committed to bringing you the products and services necessary for you to reach your financial goals. That's why we are pleased to offer a Veridian PAL (Payday Alternative Loan).

Memorial Day hours for Veridian branches. Learn more...

A Veridian PAL is different. Similar to a Payday loan, it is a small, shortterm loan. But there are some key differences. There are no sky-rocket interest rates, you are given a little longer to repay the loan, and the PAL will help you develop healthy savings habits.

For family fun, check out Kids' Zone at My Waterloo Days! Learn more...

Veridian PAL vs traditional payday lenders

Join us for Movies Under the Stars in Ankeny and West Des Moines. Learn more...

Personal and LOC Loan FirstStep Credit Program Storm and Flood Loan

Real Estate Center Home Equity Credit Cards Apply for a Loan

Fee

Veridian PAL

Payday Lender

Apply for a Home Loan

Application fee

$20

$75

Loan Rates

Interest rate*

as low as 19%**

190-780%

Payment Protection

Length of Repayment

180 days

14 days

Fee Charged for each $100

$15-$30

Savings Plan Included

Yes

Veridian Home Home Banking Login Reorder Checks Rates FAQs

* The annual percentage rate does not take into account your required deposit. ** 19% with Automatic Payment, 21% without Automatic Payment The PAL is available up to $1,000 with a repayment term of six months. With a PAL, half of the loan amount you request is yours to use right away. The other half is deposited into your Veridian Savings Account and held until the loan is paid in full, allowing you to establish a Savings Account. For example, if you request a loan for $500, you will be given $500 to use. An additional $500 is also deposited to your savings account, making the total amount borrowed $1,000. This unique combination of a loan and a Savings Account allows you to break the payday loan cycle. For additional information on the Veridian PAL, view our frequently asked questions.

Payday Lending: A REAL Solutions® Implementation Guide

http://www.veridiancu.org/loans/pal.asp

5/21/2008

Exhibit 4: Veridian CU’s Training Manual Section Regarding PAL

PAYDAY ALTERNATIVE LOAN (PAL) The purpose of this loan is to assist individuals with financing in an emergency situation such as an unexpected bill or car breaking down. This loan program also provides a financing solution to individuals needing and wanting an alternative to the current payday lender loans charging individuals an annual percentage rate averaging from 390%-780%. In 2003, the Center for Responsible Lending concluded 91% of all payday loan users have five or more payday loans per year. Veridian began offering this affordable alternative for members on March 1, 2007 at a much lower, more manageable interest rate of 21% or 19% if set up with automatic loan payments. In addition, this loan program was developed in the hopes to break the cycle of those individual’s getting wrapped up in a cycle with payday lending and not able to get out of repeat patterns of utilizing its services. Upon completion of each funded Payday Alternative Loan at Veridian, half of the loan amount will be deposited and put on hold in the member’s savings account with Veridian and half will be disbursed to the member to be used immediately. This will enable members to build a savings account.

TERMS        

Interest rate of 21% APR (Fixed Rate) or 19% APR (Fixed Rate) if set up on automatic payments through Automatic Processing Group (APG) or payroll deduction Payroll, social security, or pension direct deposit is required (must have been deposited in the account at least once and the direct deposit must belong to the person applying for the PAL loan) Payment is required with each direct deposit of payroll check (weekly, biweekly, semimonthly, or monthly) Loan minimum of $400; maximum of $1000 Repayment term up to 6 months Closed-end loan $20 minimum payment $20 application fee  This fee is being implemented to reduce Veridian’s losses on this program, as well as encourage members to take advantage of the 6 month term and decrease repeat borrowing. If members ask why the fee is being implemented), share this information with them.  The member has two options to pay the fee…  Add it to the loan on the Terms/Insurance/Fees page under the Fees section.  Pay cash/debit from an account.  If the member pays in cash, or asks us to take it from their account, we simply place the $20 in the Miscellaneous fee code, “PAL Application Fee.”  There will be no exceptions to the application fee. If members receive a PAL, the fee should be added to the loan, or paid in cash. If members are denied a PAL, every effort should be made to collect the fee in cash or by debiting it from the member's account.

Payday Lending: A REAL Solutions® Implementation Guide

QUALIFICATION       

Cannot have an unpaid charged off loan/account with Veridian CU Cannot be currently delinquent more than 10 days on any loan with Veridian CU $20,000 maximum unsecured (this loan cannot take them over the limit) Can only have one PAL at a time Cannot have an paid and/or unpaid charge off with any payday lender (Teletrack and Credit report) Cannot have a pending bankruptcy (Teletrack report) Payment Protection on PAL’s see note below

OTHER FACTORS          

Able to approve the PAL if the Share Draft is currently in the negative Teletrack report and Credit report must be pulled every time an application is taken Employees and Board of Directors are able to apply for a PAL if they meet the qualifications above without it being reviewed and approved by a Supervisor, Manager, member of the Employee Loan Committee, or member of the Credit Committee. Open a separate savings for half of the PAL proceeds to be deposited. Title that second savings (#6) “PAL Savings”, so members and employees are aware why that money is on hold. There is no need to fill out a membership application for the addition of this account. Not collected on like standard consumer loans 1 courtesy call by a collector After 30 days, the PAL will be charged off If the PAL is charged off, it will have the same impact on the member’s credit report as a standard consumer loan Encourage members to utilize the Balance Program as part of counseling Collateral page in Lending Platform - choose “Other”, input “Shares as required under (member #) Savings #6” NOTE: PAL's are eligible only for Payment Protection Packages 2 (Loss of Life & Disability) and 3 (Loss of Life only); PAL's are not eligible for Package 1 (Loss of Life, Disability, and Involuntary Unemployment). This is due to the fact that the Involuntary Unemployment benefit is only available 6 months after the loan's origination, and since a PAL's maximum term is 6 months, no PAL would qualify.

Payday Lending: A REAL Solutions® Implementation Guide

Model 7: Paycheck Advance Loan Four Corners Federal Credit Union 16 CR 6500 Kirtland, NM 87417

www.fourcornersfcu.com Assets:

$16.3 million

Members: 3,422 Contact:

Phyllis Crawford, CEO (505) 598-3960 pcrawford@fourcornersfcu.org

Four Corners Federal Credit Union’s (Four Corners FCU’s) Paycheck Advance Loan program started in February 2005. A spreadsheet of PAL loans since the product’s inception follows (Exhibit 1). Loan Features:  Loan amount: $700 maximum + $20 loan application fee  Closed end  18% APR  Term: four months; equal payment installments  Direct deposit required Underwriting Criteria:  At least two direct deposits received prior to loan disbursement  Member has been employed by present employer for at least six months Results for 12 months preceding September 2008 (unless noted otherwise):  Average number of loans disbursed each month: 452  Average loan disbursed: $700  Average outstanding balance per month: $454,000  Interest income: $82,840  Application fee income: $108,420  Charge-offs since inception of program: $35,807  Charge-offs for nine months in 2008: $8,509  Charge-offs as a percent of average outstanding balances: 1.9%

Payday Lending: A REAL Solutions® Implementation Guide

FOUR CORNERS FEDERAL CU-Exhibit 1 PAYCHECK ADVANCE LOAN PROGRAM QUALIFICATIONS FOR LOAN:

Must have direct deposit and at least 2 pay days received. Member has been employed by present employer for at least 6 months. Member who is getting loan must be the one getting direct deposit. (Spouse cannot pay for the loan)

RESTRICTIONS:

Loans are limited to 700.00 + Loan Application Fee=$20.00 Note (Changed from 500.00 9-01-07) 2006

Notes

January

Amount of New Loans Disbursed

187,263 366

Number of New Loans Application Fee Income Total of Loans Interest Income for Month

CHARGE OFFS SINCE INCEPTION

February

Oct

Nov

Totals 2006

March

April

May

June

July

August

Sept

Dec

144,445

219,060

167,877

198,551

221,299

190,460

233,830

193,769

173,326

185,329

240,160

2,355,368

283

428

328

389

436

370

434

380

339

360

465

4,578 91,560

7,320

5,660

8,560

6,560

7,780

8,720

7,400

8,680

7,600

6,780

7,200

9,300

287,284

253,259

257,389

266,725

278,188

282,694

296,568

293,674

303,011

303,708

285,309

324,103

4,470

3,709

3,799

3,531

4,159

3,964

4,383

4,752

4,345

4,558

5,083

4,142

15,428

50,896

142,456

2007 Notes

January

Amount of New Loans Disbursed

172,680

Number of New Loans Application Fee Income Total of Loans Interest Income for Month

CHARGE OFFS SINCE INCEPTION

Oct

Nov

Totals 2007

March

April

May

June

July

August

Sept

144,950

213,234

175,400

220,870

198,670

194,725

307,120

271,960

317,153

309,601

373,663

2,900,026

335

285

415

340

431

387

381

524

403

461

451

537

4,950

6,700

5,700

8,300

6,800

8,620

7,740

7,620

10,480

8,060

9,220

9,020

10,740

99,000

308,440

273,698

298,136

311,754

311,633

321,883

334,958

368,207

401,441

418,973

426,614

500,429

356,347

4,934

4,348

4,144

4,518

5,285

4,720

5,065

5,059

5,709

6,592

7,394 Total Income

7,137

64,904

27,298

February

Dec

163,904

thru 1207

Payday Lending: A REAL Solutions速 Implementation Guide

2008 Notes

January

Amount of New Loans Disbursed

292,956

Number of New Loans Application Fee Income Total of Loans Interest Income for Month

February

Oct

Nov

April

May

June

July

August

Sept

240,078

293,704

318,027

309,510

324,820

323,455

343,554

313,190

2,759,295

427

347

422

461

445

466

493

445

3,972

8,540

6,940

8,440

9,220

8,900

9,320

9,860

8,900

79,440

454,337

417,100

444,458

451,893

435,823

460,751

448,972

480,170

495,625

454,348

8,168

5,387

6,384

6,763

6,909

6,649

7,112

6,757

7,589

61,717 Total Income

CHARGE OFFS SINCE INCEPTION

35,807

Dec

Totals 2008

March

141,157

THRU 0908

Payday Lending: A REAL Solutions速 Implementation Guide

Model 8: Fast Ca$h Loan

1st Financial Federal Credit Union 1550 Country Club Plaza St. Charles, MO 63303

www.1stfinancialfcu.org Assets:

$204 million

Members: 27,815 Contact:

Tom Kist, Chief Lending Officer (636) 916-8322 tkist@1stfinancialfcu.org

1st Financial Federal Credit Union (1st Financial FCU) launched its Fast Ca$h Loan product in February 2008. The Fast Ca$h product is marketed with the tagline “Fast Ca$h…when you need it most.” Loan Features:  $500 advance only  Closed-end  30-day term  10% APR  $50 application fee – collected in cash or taken from $500 advance  Any method of payment permitted  Loans can be renewed up to three times; $50 application per renewal  If balance still unpaid after three renewals, can convert to a six-month amortized loan Underwriting Criteria:  At least 21 years old  Valid driver’s license or state ID  30 days membership in good standing  Savings and/or checking account in good standing at 1st Financial FCU  Minimum monthly income of $1,000  60 days employment; must provide pay stubs for 2 consecutive months  Resident of MO/IL  Must have lived at current address for at least 60 days  No loan in collection status with 1st Financial FCU  No short term loan outstanding with 1st Financial FCU  Not in current Chapter 13 plan or prior bankruptcy within last two years

Payday Lending: A REAL Solutions® Implementation Guide

Results for February through October 2008:  Average number of outstanding loans per month: 48  Average outstanding loan balance per month: $24,000  Average number of times members used Fast Ca$h over period: 3  Average loan amount: $500  Loan fees (since program began): $20,000  Interest income (since program began): $4,000  Losses (since program began): $1,500  Fast Ca$h delinquency as of October 2008:  2 loans > 60 days  3 loans > 100 days Samples Included:  Fast Ca$h marketing brochure (Exhibit 1)

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Sample Marketing Brochure

Payday Lending: A REAL Solutions速 Implementation Guide

Model 9: PayDay Advance Loan

Rivermark Community Credit Union 8505 SW Creekside Place Beaverton, OR 97008

www.rivermarkcu.org Assets:

$415 million

Members: 46,314 Contact:

David Noble, VP of Marketing (503) 526-3635 dnoble@rivermarkcu.org

Rivermark Community Credit Union (Rivermark Community CU) has been offering its PayDay Advance Loan since January of 2008. Loan Features:  Closed-end  $50 minimum advance; $500 maximum  25% APR  $15 application fee  30-day term  Limited to six PayDay Advance Loans in a calendar year Underwriting Criteria:  At least 18 years of age  Must be a Rivermark Community CU member for at least six months  Provide most recent paystub or proof of income from disability, Social Security or pension  Provide current photo ID  Provide name, address and phone number of a personal reference  Loan amount is limited to 20% of gross monthly income up to $500 Procedures: For his/her first PayDay Advance Loan, a member must visit one of Rivermark Community CU’s branches and complete a short application. No credit checks are completed. For subsequent advances, members can call the credit union’s phone center and make the request. Funds are deposited into the member’s checking or savings account. Results from January through November 2008:  Average number of outstanding loans per month: 70  Total number of advances made for period: 2,805 Payday Lending: A REAL Solutions® Implementation Guide

      

Average $ outstanding balances per month: $21,182 Total $ loans advanced during period: $1,112,671 Average loan amount: $396 Average number of times members use PayDay Advance Loans: 3 Fee income (through 11 months): $42,638 Interest income (through 11 months): $20,255 PayDay Advance Loan delinquency as of November 2008:  Less than 30 days 17 loans $4,664  31 - 60 days 9 loans $3,295  60 days + 5 loans $1,593

Collection Activity Procedures: Automated delinquent notices are sent when loan is 10 days delinquent and again at 20 days. Coborrowers are notified by mail when the loan is 25 days delinquent. Collection calls are made when the loan is 20 to 30 days delinquent. The loan is charged off when it is determined the loan is uncollectible. Marketing: PayDay Advance Loan is listed as an option under Loans & Credit Cards on the credit union’s Web site. When members click on this option, they receive information about the loan, and the application criteria, as well as a comparison of Rivermark Community CU’s loan option to payday lenders in terms of APRs and fees. Members are also referred to the credit union’s “financial fitness program” link to prevent financial emergencies. Samples Included:  Sample of Web site wording (Exhibit 1)

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Rivermark Community CU’s PayDay Advance Loan Sample from credit union’s Web site at www.rivermarkcu.org

PayDay Advance Loan Rivermark to the Rescue! Don't get gouged by payday lenders! At Rivermark, we know that life happens between paydays. Sometimes you just need cash—now. Typical payday lenders charge 500% to 1300% APR on payday loans! Our new PayDay Advance Loan is your better solution for quick cash. Rivermark can help you get back on track with our quick and easy PayDay Advance Loan. Borrow $50 to $500 Today for Less! Rivermark's PayDay Advance Loan has a flat $15 Application Fee and a low 25% APR. If you borrow $500 for up to 30 days, that will come to approximately $10.27 in interest (plus $15 application fee). Compare that to the $75 charged by many payday lenders. It's easy to apply. The first time you obtain a PayDay Advance Loan, you will simply need to visit any of Rivermark's six branches (PayDay Advance Loans are not available during Saturday hours) and answer a few questions. You may obtain up to six PayDay Advance Loans in a calendar year (January - December). After your first PayDay Advance Loan, you may be able to obtain subsequent advances with a simple phone call to 503-626-6600 or 800-452-8502. You must be a Rivermark member for six months or more and at least 18 to qualify for a PayDay Advance Loan. Getting Started. The following information will be needed to process your PayDay Advance Loan:   

Your most recent pay stub (please provide your employer’s phone number if it is not listed on pay stub.) Income from employment or sources such as disability, Social Security, and pensions qualifies. Current Photo ID The name, address and phone number of a personal reference.

Prevent Financial Emergencies It’s exhausting to always feel financially stressed. Rivermark is here to help you over the hump with a PayDay Advance loan. But what happens after the loan? Many people find that it’s just too hard to catch up and rely on payday loans month after month. Rivermark wants to help you regain control of your finances. That’s why we offer a completely free and confidential financial fitness program. Contact us today for more information on Rivermark’s PayDay Advance Loans.

Payday Lending: A REAL Solutions® Implementation Guide

Model 10: GoodMoney PayDay Loan A Not-for-Profit Alternative

Prospera Credit Union 4830 N. Ballard Rd. Appleton, WI 54913

www.myprospera.com Assets:

$154 million

Members: 16,101 Contact:

Kristina Van Schyndel, Director of Marketing (920) 882-4790 kristi.vanschyndel@myprospera.com

Prospera Credit Union (Prospera CU) has offered its GoodMoney Payday Loan since 2005. Similar to a traditional payday loan, eligible member walk-in applications are accepted and 89% are approved.. Loan Features:  $9.90 per $100 borrowed (APR of 257% for 14-day loan)  14-day term  Majority of payments are set up as ACH  Upon the 3rd loan rollover, GoodMoney members receive a letter with a voucher offering a free individual counseling session (up to $50 value) with Financial Information Service Center (FISC), a nonprofit accredited consumer credit counseling agency. If the voucher is used and signed by a FISC counselor, the member’s next loan is fee-free. Underwriting Criteria:  At least 18 years of age  Must be eligible for membership – if a nonmember, a new membership is created  Minimum income requirements based on geographic area and time at current job  Must provide the following documents:  Two forms of ID; one must be an unexpired photo ID  Checking account statement  Utility bill (for address verification)  Recent paycheck stub  GoodMoney application form Procedures: CL Verify is used as subprime data base. Regulations for rate, number of loans and number of rollovers allowed vary by state.

Payday Lending: A REAL Solutions® Implementation Guide

Results as of November 2008:  1,597 members served, most of whom were new to Prospera CU  Loan balance outstanding: $107,000+  Average loan amount: $400  Average number of times members use the product in 12-month period: 7  Fee income (through 11 months): $167,000  Loan losses (through 11 months): $57,697  Losses average $4.60 of the $9.90 per $100 borrowed  GoodMoney delinquency as of November 2008:  30 days or less: 19 loans  Over 30 days: 8 loans  1,347 referrals have been made to FISC; 33 individuals have followed through with counseling.  Through 2007 and 2008, 46 GoodMoney members have been converted to a traditional loan with termed payments Demographics of GoodMoney Borrowers:  Gender  42% male  58% female  Age  18-34 38%  35-54 40%  55-64 8%  65+ 4%  Income  <$25,000 39%  $25K-$45K 24%  $45K-$65K 7%  $65K+ 2%  Marital Status  Married 36%  Unmarried 57%  Separated 2%  Unknown 4%  Homeownership  Own 46%  Rent 53% Collection Activity Procedures: Collection begins on the first day of delinquency with a phone call to the member. A letter is sent on day five, followed by another phone call. At 30 days, a legal notice is provided to the member. Loans are charged off at 45 days. Marketing: GoodMoney is marketed in several different ways, both internally (branch and Goodwill store) and externally. Each of the five credit union branches has external signage on the building. Marketing is heavily focused on public relations.

About GoodMoney Payday Loan Turnkey Solutions GoodMoney is now being marketed by Prospera CU as a turnkey solution for other credit unions. The brochure below describes the two options available. These are some additional questions and responses to the GoodMoney turnkey solution. Payday Lending: A REAL Solutions® Implementation Guide

Is GoodMoney licensed to do business in other states? GoodMoney is a registered trademark through Prospera CU. Prospera CU is not licensed to do business in other states outside of Wisconsin at this time. However, if a credit union chooses the GoodMoney program they will sign an agreement with Prospera CU allowing them to use the trademark (if they choose the branded option) with the caveat that they follow minimal guidelines outlined by Prospera CU. What are the costs associated with using the Turnkey Solution? The branded (GoodMoney) option carries a one-time fee of $3,750 plus a per-application fee of $2.25; the self-branded option carries a one-time fee of $3,000 plus a per-application fee of $2.25. How many other credit unions are using the program? There are currently two other credit unions using GoodMoney: Superior Choice Credit Union ($159 million in assets) in Superior, WI and Delta County Credit Union ($70 million in assets) in Escanaba, MI.

Payday Lending: A REAL Solutions速 Implementation Guide

4830 N. Ballard Rd. Appleton, WI 54913

Are you considering a payday loan program for your organization?

A complete, cost-effective, turnkey solution.

Be up and running in as little as 90 days!

Designed to help your credit union start, brand, market, maintain and evolve a payday lending program.

Choose from 2 packages:

package ackag cka

GoodMoney Consulting with Brand

package packag ackag

GoodMoney Consulting Self-Branded

• Beginner’s guide including assistance with obtaining board approval, payday loan policy, financial pro forma and much more

• Advertising and public relations support including marketing materials and templates, and trademark guidelines

• Advertising and public relations support including marketing materials

• Complete operations manual including program set-up, suggested underwriting criteria, pricing, procedures and much more • Initial training, ongoing support and comprehensive training manual including procedures for frontline and back-office staff, from taking and verifying an application, to collecting practices, procedures and timetables • User group meetings to share best practices and data reports for use in benchmarking your operation in comparison to other GoodMoney users • Fully automated web-based loan origination system

• Complete operations manual including program set-up, suggested underwriting criteria, pricing, procedures and much more • Initial training, ongoing support and comprehensive training manual including procedures for frontline and back-office staff, from taking and verifying an application, to collecting practices, procedures and timetables • Fully automated web-based loan origination system • Minimum one-time start-up fee • No minimum monthly transaction fee • Small per-application fee

• Minimum one-time start-up fee • No minimum monthly transaction fee • Small per-application fee

A nationally recognized program featured in USA Today, New York Times, industry trade journals and winner of the 2007 Herb Wegner Memorial Award!

920.882.4800 goodmoneystore.com/consulting

4. Product Pricing Pricing your new loan product can be challenging, given that it is short-term and riskier than most traditional loan products. This section provides tools and guidance to help with this important product development issue. An interactive Excel spreadsheet is available in the REAL Solutions Impact Center as a separate file to help you make pricing decisions. It is located at: http://realsolutions.coop/assets/2009/3/23/REAL_Solutions_Payday_Loan_Worksheet_03.20.09.xls. The spreadsheet contains two tabs—one for closed-end loans and one for open-end models. Instructions for using the spreadsheet follow in Exhibit 1. Pricing models in Section 3 vary considerably. The models can help you price your product based on risk and volume assumptions. A few observations are in order regarding pricing: 1. At least 13 states have passed laws limiting the cost of short-term payday loans (PDLs), with 36% often set as the cap. Many of these actions have been prompted by policymakers’ and consumer groups’ concerns about borrowers paying usurious rates for loans that ensnare them into a debt trap they can’t escape. Credit unions should be aware of, and take into account, the applicable laws and regulations. 2. Payday lenders have moved out of those states with severe pricing restrictions leaving many consumers with limited financial options or perhaps even more costly options. Credit unions have an opportunity – perhaps even an obligation – to come forward and provide a better loan alternative. 3. Credit unions should be aware of the pricing restrictions that affect military personnel and their families. See Section 5—Regulations—in this guide. 4. Credit unions that choose to charge an application fee should be able to justify the costs of that fee. An application fee must be charged to all applicants of that loan type whether approved or not in order for the fee to be excluded in the APR. For further discussion regarding Finance Charges under Reg Z, see Section 5—Regulations. 5. Some of the models featured in Section 3 are located in states without restrictive usury or PDL regulations and their rates may exceed the APRs preferred by some consumer groups (generally in excess of 36%). The purpose of this implementation guide is to offer credit unions a variety of existing and successful models. It avoids judgment as to what constitutes an optimal rate. In the end, that is the decision of the credit union based on its individual philosophical values. 6. Featured credit unions that offer products with higher APRs justify those costs based on labor and loss expenses. Generally risks are greater because no minimum membership period is required. These credit unions are also apt to offer incentives to members to take advantage of financial education programs to improve their financial stability, which can increase processing and servicing costs.

Payday Lending: A REAL Solutions® Implementation Guide

NCUA Pricing Guidelines At least one NCUA examiner offers this simple break-even pricing strategy for a PDL-alternative product, given that federal credit unions can’t exceed 18% APR: Calculate the credit union’s average cost of funds and average operating expenses, and then estimate the charge-off ratio for the product to determine if an 18% rate will cover the costs. For example: Average operating expenses Average cost of funds Estimated charge-offs

4.0% 2.3% 10.0%

Total expenses 16.3% APR 18.0% Net income (APR - total expenses) 1.7% The charge-off calculation is made by totaling net charge-offs for the product over the past12 months and dividing by the average outstanding balance for the product. This is easy to calculate once you have one year of history. Estimating charge-offs as you go into a new product is more difficult, but using 10% as an estimate is probably safe. This section includes the following Exhibits:  Spreadsheet Instructions (Exhibit 1)  Closed-End Worksheet hard copy of the interactive spreadsheet (Exhibit 2)  Open-End Worksheet hard copy of the interactive spreadsheet (Exhibit 3)  Closed-End Formulas used in the interactive spreadsheet (Exhibit 4)  Open-End Formulas used in the interactive spreadsheet (Exhibit 5)

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Spreadsheet Instructions This interactive spreadsheet assumes some knowledge of Excel. Some formulas have been inserted to automatically calculate payments, periodic interest, and income and expenses, based on certain inputs. The spreadsheet can easily be expanded into additional columns to look at various model scenarios and/or by years, with different assumptions as a product matures. Cell references are not fixed or absolute, meaning that as you copy formulas, cell references will be adjusted. If you want absolute cell references (so they always point to a particular cell), use the F4 function key in the formula bar to position the desired cell reference. The first thing we suggest is that you save the original worksheet under one file name, then play with it under different file names so that you always have the original to revert back to, if necessary.

Closed-End Worksheet – Example 1 CU The three columns on the left provide income/expense information per loan. They enable you to determine if your pricing structure is adequate on a loan by loan basis. The two columns on the right determine income/expenses based on a portfolio of loans. They can help you determine the bottom line impact the product will provide, based on usage assumptions.

Per Loan Calculations: Loan Amount: Input a loan amount. The example uses $500, but you can insert any amount. Loan Term in Days: Input the number of days you want for a loan term. The example uses 90 days. # Days between Payments: Input the number of days between payments. This may vary depending on how often a borrower is paid. As the number of days change, you can see the effect it has on interest income. The example uses 30 days. Number of Payments: The spreadsheet calculates the number of payments based on your input. Number of Loan Periods/Yr: Our example uses a 90-day loan term, or 4 loan periods per year. For a typical 14-day payday loan, the number of loan periods would be 26. Annual Interest Rate: Input the interest rate you plan to charge on your loan product. Periodic Interest Rate: The spreadsheet will calculate the periodic interest rate based on your annual rate and number of days between payments. Periodic Payment: The spreadsheet will calculate the payment per period based on loan amount, number of payments, and periodic interest rate. For the example used here, a $500 loan at an 18% rate will result in three payments of $171.69. Cost of Funds: Input the average cost of loan funds. The example uses 2%. Interest Income: The spreadsheet calculates the interest income for this loan over the desired period of time. In the example, the interest income is $15.07. Application Fee: If you plan to charge an application fee, that amount should be inserted here. Other Fee Income – Late Fee: Here you can insert other fee income that may be associated with a loan product such as NSF income for payment from a bad check or late fees. The example uses a $15 Payday Lending: A REAL Solutions® Implementation Guide

late fee. However, the late fee is only assessed on delinquent loans, so the income per loan is based on the estimated percentage of loans that will be delinquent (Delinquency Ratio/Mo/#Borrowers), which in our example is 12%. In our example, the loan term is 90 days, so the fee income is further divided by the number of payments. Obviously, this isn’t a perfect calculation for late fee income because it is possible for this loan with three payments to be charged a late fee for each payment. On the other hand, the delinquency ratio includes those loans that are over 30 days past due, even though it is likely the loan will be charged for only one late payment regardless of degree of delinquency. Given your need for perfection, you can further tweak the estimate and calculation to your liking. Total Income per Loan Advance: The spreadsheet calculates the total income per loan advance based on interest income, application fee and other income. For our example, the total income is $35.67.

Expenses: Credit Check: If you plan to do a credit check, either through a subprime credit bureau or one of the mainstream credit bureaus, the cost should be factored in under expenses. For our example, we’ve used $1. Time to Generate/Service a Loan in Hours: In our example, we use ½ hour. Depending on how efficiently you plan to process your loan, this time can vary significantly. If you plan to model payday lenders, the time should be between 10 to 20 minutes. Loan servicing time should be minimal, but it is included here as part of loan generation time. Hourly Salary: Depending on whether you plan to have your tellers or loan people handle the loan, salary levels will vary. In our example, we use an average rate of $14.50 that could also cover a collector’s salary, as well. Loan Labor Costs: The spreadsheet will calculate loan labor costs based on your input. Cost of Funds: The spreadsheet calculates your cost of funds for the loan, using your cost of funds rate. The cost of funds rate, however, is an annual rate. The spreadsheet divides the loan amount by the number of loan periods in the year, which in the example is four periods. This is multiplied by the cost of funds rate. However, in the example, the loan is repaid over three payments, so the loan amount is not outstanding for the whole period. The product therefore is further divided by the number of payments, producing a cost of funds of $.83 for the $500 loan. Other Overhead Costs: While we have left this cell empty, you may want to factor in any depreciation expenses that may be associated with special software for your payday loan product, marketing expenses for the product, additional cash on hand, supervisory expenses, etc. In particular if you are charging an application fee, you should be able to justify that fee to examiners. It is certainly reasonable for a loan product to cover direct expenses associated with the product as well as indirect operating expenses. The cell in the spreadsheet is set for a dollar amount, but a percent of overall operating expenses or cost of office space is also reasonable. If your credit union plans to use a savings component or incentives for financial education, those options will increase your costs per loan and should either be included in other overhead costs or added as separate line items. Other loan product expenses could include tracking cross-sales as part of a migration strategy to move members into other credit union products and services. Delinquency Ratio/Mo/#Borrowers: As noted earlier, the example uses 12%. This is going to vary widely depending on your loan term, collection and charge-off practices, and whether or not your loan product requires direct deposit. Direct deposit mitigates delinquency and loss risk tremendously.

Payday Lending: A REAL Solutions® Implementation Guide

Here are some credit union examples:  A 14-day loan product set up to resemble a payday loan that accepts post-dated checks, charges loans off after 45 days, and has 8% of its loans delinquent.  A 60-day loan product that does not require direct deposit, and has 9.5% of its loans delinquent.  A 90-day loan product that does not require direct deposit, and has 15% of its loans delinquent.  A 30-day loan product that does not require direct deposit, and has 10% of its loans delinquent.  A 120-day loan product that does require direct deposit, and has less than 2% of its loans 30 days or more delinquent. Collection Time per Delinquent Loan in Hours: Time will vary depending on how much collection effort you plan to put into these small short-term loans. On average, credit unions make one or two phone calls and send one or two letters. In the example, we’ve used 30 minutes of time. Collection Expenses per Loan: The spreadsheet calculates this expense based on the amount of time, salary, and estimated percentage of loans that are delinquent. Loan Loss Ratio/Total $ Loans Made: The more accurate calculation is loan loss ratio/average outstanding balance. However, most credit unions calculate their loss ratio based on total $ loans made. Not only is the ratio much smaller but average outstanding balances can change quite a bit with a new product. As with delinquency, loss ratios vary considerably. The spreadsheet example uses 2.2%. Some other examples:  Payday lending industry losses average about 4% of total volume.  A 30-day loan product that does not require direct deposit has a loss ratio of 1.1% of total volume and 10% of average outstanding volume.  A 30-day loan product that does require direct deposit has a loss ratio of .67% of total loan volume.  A 120-day loan product that does require direct deposit has a loss ratio of .31% of total volume and 1.9% of average outstanding volume.  A new 60-day loan product that does not require direct deposit has a loss ratio of 9% of total loan volume. Loan Losses per Loan: For our $500 loan example with a loss ratio of 2.2%, the loss per loan is $11. Total Loan Expenses per Loan: Total loan expenses for our example add up to $20.95. Total Income per Loan Advance: The spreadsheet calculates total income. For our example, income is $14.75 per advance.

Loan Portfolio Calculations: If you are satisfied with your individual loan calculations, it is time to start on your portfolio estimations and calculations. CU # Members: Insert the number of members your credit union has. The example uses a membership of 26,700. % of Members Using PDL Product: This will vary based on the age of your product and how aggressively you market it. Whereas estimates as to the percentage of credit union members using payday lenders vary between 10% and 20%, most credit unions experience somewhat less than 1% for a new product to 10% for a mature product. In our example, we use a conservative estimate of 1% for a new loan product.

Payday Lending: A REAL Solutions® Implementation Guide

# Members Using PDL Product: Using our example of 1%, 267 members are estimated to use the product during the year. % of Consistent Users: There are a couple of ways to try to estimate usage. One way is to estimate consistent users â&#x20AC;&#x201C; those who will use the product more than once or twice a year. Experienced credit unions find 50% to 75% are consistent users. Another way is to estimate the average number of advances per year for both consistent and casual users. If you prefer to use the second method, skip this cell and proceed to Average Loan Amount. For our example with a 90-day term, we estimate 75% of users will use the product two-to-four times a year. Many credit unions also limit the number of rollovers or times members can use the product during a 12month period. Others encourage or require some form of counseling with regular usage. Such limitations should be factored into your percent of users or average number of advances. # of Consistent Users: Using our 75% calculation, 200 members are expected to use this product consistently. Average Loan Amount: This amount can vary depending on your maximum loan amount and term. In our product example with a 90-day term, we use $300 as the average loan amount at any one time. Experienced credit unions report averages between $300 and $350 when the maximum loan is $500. Those with higher maximums report higher averages. Average # Advances/Year: Remember that the example is for consistent users. In our product example with a 90-day term, we use 3 advances as the average per year. If you prefer to include an estimate of advances for both consistent and casual users, you can either insert another calculation for casual users or modify your average number of advances downward to include both. Total # Loans/Yr: The spreadsheet multiplies the number of consistent users by the average advances per year to arrive at a total of 601 for our example. If you modified your average number of advances/year to include both consistent and casual users, you will need to change this formula to point to cell F4 instead of F6. Total $ Loans Made: The spreadsheet multiplies the total number of loans by the average balance to arrive at total $ loans for the year of $180,225. Avg. Outstanding Balance: The spreadsheet calculates average outstanding balance by dividing total $ loans made during the year by number of loan periods in year. In our example, this is $45,056. Income from Loans: The spreadsheet calculates interest income from loans by multiplying the average outstanding balance by the annual interest rate, which for our example is 18%. The result is interest income of $8,110. Income from App Fees: The spreadsheet calculates income from application fees by multiplying total number of loans by the application fee. For our example, the income is $12,015. Other Fee Income: In the example we use only a late fee for other income. The spreadsheet calculates the income by multiplying total number of loans by late fee per loan. The income for our example is $360. Total Income: All income sources are added and sum to $20,486.

Expenses: Credit Checks: The spreadsheet multiplies total number of loans by the cost per credit check which is $601 for our example. Payday Lending: A REAL SolutionsÂŽ Implementation Guide

Loan Labor Costs: The spreadsheet multiplies labor cost per loan by total number of loans, or $4,355 for our example. Collection Labor Costs: The spreadsheet multiplies collection labor per loan by total number of loans, or $523 for our example. Loan Loss Expenses: The spreadsheet multiplies total $ loans made for the year by the loan loss ratio of 2.2% for our example. Estimated losses are $3,965 for our example. This is an average of $6.60 per loan, less than our calculation of $11 on a per loan basis. Remember however, our individual loan example was for $500. Our average loan in the portfolio is $300. The loan loss ratio to average outstanding balance is 8.8%. Cost of Funds Expenses: The spreadsheet multiplies average outstanding balances by the cost of funds (COF) ratio inserted into cell B10. The result in the example is $901. Total Expenses: All expenses are added and sum to $10,345 in our example. Total Income: Total net income for our portfolio example amounts to $10,141. What about the 25% who only use the product once? Well, just change cell F5 to 25% instead of 75% and change cell F8 to 1 instead of 3 and you will see that total income is now $1,177. So even those borrowers who use the product just once will produce positive income.

Good Luck!

Payday Lending: A REAL Solutions速 Implementation Guide

Open-End Work Sheet – Example 2 CU We use the same product features as in the closed-end spreadsheet with one exception: we have replaced the application fee with an annual fee. The following differences are noted between the openend and closed-end spreadsheets:

Per Loan Calculations: 

 

Under income, an annual fee is assessed in lieu of an application fee. An application fee is charged with each loan whereas the annual fee is charged just once per borrower. However, the fee is charged whether the borrower uses the product just once or continuously throughout the year. Under expenses, the time to generate/service the loan has been reduced to 15 minutes instead of 30 minutes. While the initial set-up could still take 30 minutes, subsequent advances will likely occur at the teller line, reducing labor expenses. Total income per loan advance is considerably higher at $48.35 than under the closed-end scenario because an annual fee is higher than an application fee of $20.

Loan Portfolio Calculations:     

The percent of consistent users has been increased to 90% from 75% for the closed-end scenario. The assumption is that members willing to pay the annual fee of $50 will be more likely to use the product during the year. Income from annual fees is calculated by multiplying the annual fee amount by the number of members using the product rather than the number of loan advances. Loan labor costs are half of the costs under the closed-end structure. Credit check expenses are based on number of users rather than number of advances. Total income under this scenario is more than $4,000 higher than under the closed-end structure.

Is an annual fee better than an application fee? The answer is: it depends. The closed-end example assumes 75% of users will pay an average of $60 per year in application fees to use the product three times. However, 25% will only pay one fee of $20. Under the open-end example all users pay the $50 regardless of how many times it is used. A closed-end product with a shorter loan term but with the same percentage of consistent users will probably generate more income. For example, using the closed-end spreadsheet and changing the loan term to 30 days, the number of loan periods/year to 12, and the average number of advances/year to 9, will produce total net income of $18,167. The structure and pricing decisions are based on what your credit union’s mission or objective is in offering this product and its pricing philosophy.

Good Luck!

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 2: CLOSED-END Worksheet CU Name: Example 1 CU Loan Amount

Loan Portfolio $ 500

26,700 1.00%

Loan Term in days

% of Members Using PDL Product

# days between payments

# Members Using PDL Product

Number of payments Number of loan periods/yr Periodic Interest Rate Periodic Payment

% of Consistent Users

4 18%

Annual Interest Rate

1.50%

# of Consistent Users

200

# Members consistently using product

Average Loan Amount

$300

Total $ Loans Made Avg Outstanding Balance Income from Loans

Income: Interest Income

$15.07

Income from App Fees

Application Fee

$20.00

Other Fee Income

Other Fee Income Late Fee

Total Income $15.00

Expenses: $1.00 0.50

Time to generate/service a loan in hrs Hourly salary

$14.50

Cost of Funds Expenses $7.25

Cost of Funds

$0.83 -

Other Overhead

Collection Labor Costs Loan Loss Expenses

Loan Labor Costs

3 601 $180,225 $45,056 $8,110 $12,015 $360

# Consistent users X avg advances # Loans X avg loan amount Total $ loans/# loan periods/yr Avg outstanding X APR Total # loans X app fees Total # loans X late fee/loan

$20,486

$601 $4,355 $523 $3,965 $901

Total Expenses

$10,345

Total Income

$10,141

Cost of credit check X total # loans made Labor costs X total # loans made Collection costs X total # loans made Total $ loans made X loss ratio Avg Outstanding Bal X COF ratio

12%

Delinquency Ratio/Mo/# Borrowers

0.5

Collection time per deliq loan in hrs

$0.87

Collection Expenses per loan Loan Loss Ratio/Total $ Loans Made

Expenses: Credit Checks Loan Labor Costs

Credit Check

Avg rather than max

$0.60 $35.67

Total Income per Loan Advance

# Members using PDL over 1 yr % Members consistently using product

Total # Loans/Yr

Cost of Funds

267 75%

Average # Advances/Yr

$171.69

Notes:

CU # Members

2.20%

Loan Losses per loan

$11.00

Total Loan Expenses per Loan

$20.95

Total Income per Loan Advance

$14.72

Payday Lending: A REAL Solutions速 Implementation Guide

Exhibit 3: OPEN-END Worksheet CU Name: Example 2 CU Loan Amount

Loan Portfolio $500

Notes:

CU # Members

26,700 1.00%

Loan Term in days

% of Members Using PDL Product

# days between payments

# Members Using PDL Product

267

# Members using PDL over 1 yr

Number of payments

% of Consistent Users

90%

% Members consistently using product

Number of loan periods/yr

# of Consistent Users

240

# Members consistently using product

Average Loan Amount

$300

Annual Interest Rate Periodic Interest Rate Periodic Payment Cost of Funds

18% 1.50%

Average # Advances/Yr

$171.69

Total # Loans/Yr

Total $ Loans Made Avg Outstanding Balance

Income:

Income from Loans

Interest Income

$15.07

Income from Annual Fees

Annual Fee

$50.00

Other Fee Income

Other Fee Income Late Fee

Total Income $15.00

Expenses: Time to generate/service a loan in hrs Hourly salary

Loan Labor Costs $1.00 0.25 $14.50

Loan Labor Costs

$3.63

Cost of Funds

$0.83 $-

Other Overhead Delinquency Ratio/Mo/# Borrowers Collection time per deliq loan in hrs

Loan Losses per loan

$9,732

Total $ loans/# loan periods/yr Avg outstanding X APR

$13,350

Total # users X annual fees

$433

Total # loans X late fee/loan

$23,515

Collection Labor Costs

$267 $2,613 $627

Cost of credit check X total # users Labor costs X total # loans made Collection costs X total # loans made

Loan Loss Expenses

$4,758

Total $ loans made X loss ratio

Cost of Funds Expenses

$1,081

Avg Outstanding Bal X COF ratio

Total Expenses Total Income

$9,347 $14,168

0.5 $0.87 2.20% $11.00

Total Loan Expenses per Loan

$17.33

Total Income per Loan Advance

$48.35

Payday Lending: A REAL Solutions速 Implementation Guide

$54,068

# Loans X avg loan amount

12%

Collection Expenses per loan Loan Loss Ratio/Total $ Loans Made

$216,270

# Consistent users X avg advances

Expenses: Credit Checks

Credit Check

721

$0.60 $65.67

Total Income per Loan Advance

Avg rather than max

Exhibit 4: CLOSED-END Formulas CU Name: Example 1 CU

Loan Portfolio

Loan Amount

500

CU # Members

26700

Loan Term in days

% of Members Using PDL Product

0.01

# days between payments

# Members Using PDL Product

=E3*E4

Number of payments

=B4/B5

% of Consistent Users

0.75

Number of loan periods/yr

# of Consistent Users

=E5*E6

Annual Interest Rate

0.18

Average Loan Amount

300

Periodic Interest Rate

=(B8/360)*B5

Average # Advances/Yr

Periodic Payment

=PMT(B9,B6,-B3)

Total # Loans/Yr

=E7*E9

Cost of Funds

0.02

Total $ Loans Made

=E10*E8

Avg Outstanding Balance

=E11/B7

Income from Loans

=E12*B8

Income: Interest Income

=B10*B6-B3

Income from App Fees

=E10*C15

Application Fee

Other Fee Income

=E10*C17

Total Income

=SUM(E13:E15)

Other Fee Income Late Fee

=(B27*B17)/B6 =C14+C15+C17

Total Income per Loan Advance Expenses:

Credit Check

Expenses: Credit Checks

=C21*E10

Loan Labor Costs

=C24*E10

Collection Labor Costs

=C29*E10

Time to generate/service a loan in hrs

0.5

Loan Loss Expenses

=E11*B30

Hourly salary

14.5

Cost of Funds Expenses

=E12*B11

Loan Labor Costs

=B23*B22

Cost of Funds

=((B3/B7)*B11/B6) 0

Other Overhead Delinquency Ratio/Mo/# Borrowers

0.12

Collection time per deliq loan in hrs

0.5

Loan Losses per loan Total Loan Expenses per Loan Total Income per Loan Advance Payday Lending: A REAL Solutions速 Implementation Guide

=SUM(E19:E23)

Total Income

=E16-E24

=(B23*B28)*B27

Collection Expenses per loan Loan Loss Ratio/Total $ Loans Made

Total Expenses

0.022 =B3*B30 =SUM(C21:C31) =C18-C32 80

Exhibit 5: OPEN-END Formulas CU Name: Example 2 CU

Loan Portfolio

Loan Amount

500

CU # Members

26700

Loan Term in days

% of Members Using PDL Product

0.01

# days between payments

# Members Using PDL Product

=E3*E4

Number of payments

=B4/B5

% of Consistent Users

0.9

Number of loan periods/yr

# of Consistent Users

=E5*E6

Annual Interest Rate

0.18

Average Loan Amount

300

Periodic Interest Rate

=(B8/360)*B5

Average # Advances/Yr

Periodic Payment

=PMT(B9,B6,-B3)

Total # Loans/Yr

=E7*E9

Cost of Funds

0.02

Total $ Loans Made

=E10*E8

Avg Outstanding Balance

=E11/B7

Income from Loans

=E12*B8

Income from Annual Fees

=E5*C15

Other Fee Income

=E10*C17

Total Income

=SUM(E13:E15)

Income: Interest Income

=B10*B6-B3

Annual Fee

Other Fee Income Late Fee

=(B27*B17)/B6 =C14+C15+C17

Total Income per Loan Advance Expenses:

Credit Check Time to generate/service a loan in hrs

0.25

Hourly salary

14.5

Loan Labor Costs

=B23*B22

Cost of Funds

=((B3/B7)*B11/B6)

Other Overhead

Delinquency Ratio/Mo/# Borrowers

0.12

Collection time per deliq loan in hrs

0.5

Loan Losses per loan

=C21*E5 =C24*E10

Collection Labor Costs

=C29*E10

Loan Loss Expenses

=E11*B30

Cost of Funds Expenses

=E12*B11

Total Expenses

=SUM(E19:E23)

Total Income

=E16-E24

0.022 =B3*B30

Total Loan Expenses per Loan

=SUM(C21:C31)

Total Income per Loan Advance

=C18-C32

Payday Lending: A REAL Solutions速 Implementation Guide

Credit Checks Loan Labor Costs

=(B23*B28)*B27

Collection Expenses per loan Loan Loss Ratio/Total $ Loans Made

Expenses:

5. Regulations Credit unions must be familiar with applicable regulations that will affect their payday-alternative loan. Federal credit unions cannot exceed an interest rate cap of 18% APR. They can however, charge an application fee for a defined class of loans, provided it is charged to all applicants. Credit unions should establish a separate loan type, description and policy for a payday-alternative loan, to clearly define it as a distinctive class of loans. Federal credit unions should direct questions regarding rates and fees to their NCUA examiner, league compliance department and/or their attorney. Statutes affecting state chartered credit unions vary considerably by state. Whereas credit unions may be familiar with laws relating to traditional loans, there may be statute variations that pertain to shortterm, small loans. For example, under Colorado’s Consumer Credit Code, a separate section applies to “Deferred Deposit Loans,” whereby the lender accepts a dated instrument from the borrower, such as a post-dated check or ACH authorization. The loan cannot exceed $500 and the maximum term is 40 days, but different fees or finance charges apply than for larger and longer-term loans. In addition, credit unions that make deferred deposit loans may be subject to the Department of Defense Rules affecting military personnel and their families. Further information pertaining to these rules is provided below. States such as Missouri and Wisconsin have no interest rate caps for consumer loans. If state chartered credit unions have questions about usury laws that may affect their payday-alternative loan, they should contact their state regulatory agency, league compliance department, and/or their attorney. A comparison of state payday lending laws is available at the REAL Solutions® Impact Center at: http://www.realsolutions.coop/assets/2008/7/11/PaydayLendingLawsStateByStateJune2008.doc. The following information is also included in this section:  Finance Charges: Reg Z & Department of Defense Rules (Exhibit 1)  NCUA Letter No. 01-FCU-03 Regarding Payday Lending and Title Loans (Exhibit 2)

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 1: Finance Charges—Reg Z & Department of Defense Rule Loan fees under Regulation Z §226.4 Payday Loans; deferred presentment: This type of transaction is often referred to as a “payday loan” or “payday advance” or “deferred presentment loan.” A fee charged in connection with such a transaction may be a finance charge for purposes of §226.4... Finance Charge - The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. (c) Charges excluded from the finance charge. The following charges are not finance charges: (1) Application fees charged to all applicants for credit, whether or not credit is actually extended. Commentary: The creditor is free to impose the fee in only certain of its loan programs, such as mortgage loans, However, if the fee is to be excluded from the finance charge under §226.4(c)(1), it must be charged to all applicants, not just to applicants who are approved or who actually receive credit.

(4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis. Commentary: The provision applies to any credit plan in which payment of a fee is a condition of access to the plan itself, but it does not apply to fees imposed separately on individual closed-end transactions. The fee may be charged on a monthly, annual, or other periodic basis; a one-time, non-recurring fee imposed at the time an account is opened is not a fee that is charged on a periodic basis, and may not be treated as a participation fee. Minimum monthly charges, ..., and other charges based on either account activity or the amount of credit available under the plan are not excluded from the finance charge...for example, a fee that is charged and then refunded to the consumer based on the extent to which the consumer uses the credit available would be a finance charge.

Department of Defense Rule 10/1/2007 effective date; applicable to creditors that engage in any of these programs:  Payday loans. Closed-end credit with a term of less than 91 days, does not exceed $2,000 and requires the covered borrower to: (A) provide a check or other payment instrument to the creditor who agrees not to deposit or present the check or payment instrument for more than one day, or; (B) authorize the creditor to initiate a debit or debits to the covered borrower’s deposit account (by electronic fund transfer or remotely created check) after one or more days.  Vehicle title loans. Closed-end credit with a term of 181 days or fewer that is secured by the title to a motor vehicle that has been registered for use on public roads and owned by a covered borrower, other than a purchase money transaction.  Tax refund anticipation loans. Closed-end credit in which the covered borrower expressly grants the creditor the right to receive all or part of the borrower’s income tax refund or expressly agrees to repay the loan with the proceeds of the borrower’s refund. If your credit union does not fall within the definition of a ‘covered creditor’ (by offering any of the above), you do not have to comply with the additional requirements of this Act. More information on this new rule can be found in CUNA's eGuide at: http://www.cuna.org/compliance/member/eguide/eguide_svcmember_loanrate.html Donya Parrish—Montana Credit Union Network

Payday Lending: A REAL Solutions® Implementation Guide

Exhibit 2: NCUA Letter Regarding Payday Lending and Title Loans

NCUA LETTER TO FEDERAL CREDIT UNIONS NATIONAL CREDIT UNION ADMINISTRATION 1775 Duke Street, Alexandria, VA DATE:

April 2001

TO:

Federal Credit Union Officials

SUBJ:

Payday Lending and Title Loans

LETTER NO.: 01-FCU-03

The criticisms associated with payday lending and title loans have received significant attention from the media. The National Credit Union Administration urges credit unions to be aware of the risks associated with payday lending and title loan programs. Payday loans (a.k.a. deferred advance loans, cash advance loans, check advance loans, post-dated check loans, or deferred deposit check loans) are small-dollar, short-term loans borrowers promise to repay from their next paycheck or salary deposit. These loans normally have high fees, are rolled over frequently and can result in offensive lending practices. For example: A person borrows $100 until the next payday. The lender provides a two-week loan and charges a $15 fee. The lender will require the borrower to provide a postdated check for $115 to be held until the borrower’s next payday. When the loan comes due, the borrower may repay the loan by allowing the lender to process the check or by bringing in the full payment of $115 in cash. The borrower may also have the option to “roll over” the loan by taking out another loan and paying an additional $15 for another two weeks. In this example, the annual percentage rate (APR) calculates to 391 percent for the original two-week loan of $100 with a $15 fee. Because federal credit unions are limited to a maximum lending rate of 18 percent, structuring a loan in this way is impermissible 1. Generally, credit unions offer a 1

The Federal Credit Union Act and the NCUA Rules and Regulations set the maximum interest rate federal credit unions can charge on loans and lines of credit at 15 percent per annum inclusive of all finance charges. The Act permits NCUA to increase the interest rate above 15 percent for periods of up to eighteen months. The current maximum interest rate is set at 18 percent. In determining whether a particular charge constitutes a finance charge for purposes of compliance with the interest rate ceiling, we generally follow the Reg Z interpretation of that term. If the credit union charges a fee only to those borrowers who receive the loan, the fee is included as a finance charge and must be included in the APR calculation.

Payday Lending: A REAL Solutions® Implementation Guide

much less costly alternative to their members, granting them a loan with no fee; interest is calculated over the term of the loan according to the APR disclosed. Although obtaining a payday loan from a credit union is less costly to the borrower, the credit union assumes a variety of risks. Title loans, which are similar to payday loans, have some of the same risks. Title loans are short-term loans secured by clear title to the borrower’s vehicle. The original term is normally 30 days, but the typical arrangement allows the borrower to extend the loan several times by paying the interest due for the previous month. Much like the payday loan, the borrower is often unable to pay the previous month’s interest, so it is rolled (or added) into the loan, putting the borrower deeper in debt. The increased loan amount raises the loan payments; the increased payment can then cause the borrower to default on the loan, resulting in repossession of the vehicle. Title companies are urging financial institutions to participate in these ventures. The NCUA wants to caution credit unions that funding arrangements with title loan companies introduce several risks to the financial stability and reputation of the credit union. Credit unions assume the following risks by participating in payday lending and/or title lending: Credit Risk Borrowers obtaining loans to “get them through” frequently have limited financial capacity, blemished credit, or no credit history. The short term of the loan makes it difficult for the borrower to accumulate the needed payoff funds by the due date. Transaction (fraud) Risk Given the frequency of renewals and add-ons, these low-dollar loans can pose high levels of transaction risk. Because the transaction amounts are small, they seldom draw attention and are therefore subject to creation of fictitious lenders. These loans are also vulnerable to unauthorized add-ons or renewals which can mask delinquency. Small-dollar loans are often handled at the lowest level of lending authority; therefore, employees could misrepresent loan information or fail to adhere to underwriting policies, and the dollar amount may preclude the loan from being reviewed at a higher level. Reputation Risk Because of the high fees and negative characteristics emphasized by the media, members may believe the credit union is participating in inappropriate lending practices.

Payday Lending: A REAL Solutions® Implementation Guide

Compliance Risk Equal Credit Opportunity Act (Reg B): The credit union is responsible for ensuring compliance with Reg B requirements concerning nondiscriminatory lending and notification of action on loan applications. Further, if using a credit scoring system to evaluate these borrowers, the credit union must ensure such systems comply with Reg B requirements for system validation, and if overrides are allowed, that they are based on nondiscriminatory factors. Truth in Lending Act (Reg Z): Credit unions must ensure accurate Reg Z disclosures are provided to borrowers. Failing to accurately disclose finance charges and APRs can result in having to pay restitution to borrowers. Small dollar loans have a small dollar tolerance for inaccuracies. Electronic Fund Transfer Act (EFT) and Truth in Savings Regulation (TIS): Some credit unions may be establishing a lending program whereby they open a deposit account for each borrower, deposit the loan proceeds into the account, and issue an electronic access card to debit the funds from their account. The requirements of both EFT and TIS apply to such programs. Because these loans contain substantial risk for the borrower (who can get trapped in this type of borrowing) as well as the credit union, it is important management consider the following features in establishing guidelines: • Limits on “rollovers.” • Limits on the number of payday loans or title loans a borrower may have in one year. • Substantial waiting periods between loans. • Right to rescind a loan, without charge, within 24 hours after it is made. • Clear and understandable disclosures concerning the costs and risks associated with these loans. We encourage credit unions to proactively protect their members. As a credit union, you may want to provide information to your members on these issues. Make certain potential borrowers know the true cost of using short-term credit with up-front fees. Naturally, the preferred alternative is to borrow from the credit union. The person should shop around and compare offers, looking closely at the APRs. The borrower may also want to consider obtaining an advance from their employer, seeking assistance from a local consumer credit counseling service, or inquiring about obtaining overdraft protection on a checking/share draft account. If your credit union is approached by a payday lender or title loan company seeking to establish a funding agreement, we recommend you consult legal counsel in

Payday Lending: A REAL Solutions® Implementation Guide

addition to discussing the opportunities and risks of the venture.

Sincerely,

_____/s/______________________________ Dennis Dollar Acting Chairman National Credit Union Administration Board

Payday Lending: A REAL Solutions速 Implementation Guide

6. Business Plans, Policies and Procedures With a product design and pricing structure in place you can begin to develop a business plan, policies and procedures for your new loan product. Sound lending policies are essential for all loan products and a payday-alternative loan product is no different. Equally important are descriptive procedures for staff – particularly if this product will be handled differently from traditional loan products. This section contains a sample business plan, policy guidelines, and points readers to sample policies and procedures provided by some of the credit unions included in the guide.

Business Plan Appendix C of Payday Lending: The Credit Union Way contains a list of business plan considerations that should be addressed as part of a PDL-alternative product. The following is a sample business plan. It is based on the loan model portrayed in the PDL Excel spreadsheet included in this guide.

Example 1 CU Payday Alternative Loan (PAL) Purpose: The PAL is intended to provide members with a low-cost loan option to meet short-term cash needs, reducing dependency on high cost payday loans (PDLs). Loan Objectives:  The product will be priced to pay all direct costs in making the loan and provide nominal income to help offset some indirect costs.  The loan term and income criteria will be set to help make payments manageable for the borrowers.  The underwriting criteria will limit risk to the credit union to the extent possible, while allowing those with blemished credit to obtain the loan.  Portfolio and loss limits will be established for PALs and performance will be monitored monthly.  Staff will be trained to provide intervention counseling to frequent users of the product.  The overall goal of the product is to give members a safety net during periods of financial crisis, but gradually move them into more productive credit and savings habits. Loan Parameters:  Minimum loan amount of $100; maximum of $500  18% APR  $20 application fee charged to all applicants  Maximum term of 90 days; periodic payments will be set to coincide with the member’s payday  No traditional credit check will be required, but a subprime credit check will be made to determine payment history, if any, with PDLs; more than one PDL outstanding is grounds for turn down. Note: In this situation a traditional credit check should be taken to determine if the member qualifies for a longer-term consolidation loan.  Loan must be paid in full prior to additional advances  A maximum of 4 PALs will be allowed in a 12-month period  Members who receive four successive PALs will be offered intervention counseling by loan staff.

Payday Lending: A REAL Solutions® Implementation Guide

Loan Underwriting Criteria:  At least 18 years of age  Must be a member of the credit union for 90 days  Minimum monthly income of $1,000 gross, if employed, or $800 if receiving Social Security, disability or pension  Proof of income must be provided  Provide current photo ID  No delinquent loans or negative shares > 15 days old  Not in Chapter 13 or bankruptcy (reported through subprime credit check)  Two references are required PAL Portfolio Limit: The maximum aggregate amount of PALs outstanding will not exceed 3% of the credit union’s net worth, which at this time will limit outstanding PALs to $400,000. PAL Loss Limit: The spreadsheet analysis projects a loss ratio of 2.2% of total loans made in one year. If loss ratios exceed 4%, a review of loan parameters, underwriting criteria and collection activity will be conducted. First-Year Loan Projections: The spreadsheet analysis for the first year is attached as part of the business plan. In summary, the following assumptions were made:  1% of our members will use the product during the first year  75% of these members will consistently use the product – two to four times during the year  The average outstanding loan amount will be $300  Loan loss ratio as a percent of total loans made is projected to be 2.2%  The delinquency ratio as a percent of borrowers is projected to be 12%  Time to generate a loan is estimated at 30 minutes, given the fact it is a new product  Collection time is estimated at 30 minutes per delinquent borrower First-Year Loan Results:  A total of 601 advances are expected the first year, producing total loans of $180,225  These loans will generate $8,110 in interest income, $12,015 in application fee income, and $360 in late payment fee income  Loan loss expenses are estimated to be $3,965  Net income after labor, cost of funds, and loss expenses is projected to be $10,141 Collection Procedures: Because these loans are short-term in nature and are made to riskier borrowers, collection procedures will vary from our traditional loans, as follows:  Telephone contact will be attempted when the loan is 3 days past due  After 10 days, a late notice is mailed and late fee charged  After 30 days, cure notice is sent  At 45 days, the loan will generally be charged off unless collector believes borrower has intent to make arrangements for repayment Marketing PAL: A soft launch is planned for the first year until the credit union has had some experience with volume and repayment history. The following methods are planned to inform members about PAL:  A flyer will be mailed to members currently using PDLs as determined through ACHs and verification and collection efforts from payday lenders. The flier will notify the member of our PAL product.  Employees will be trained to refer members to the PAL product when members appear in financial distress, have overdrawn share accounts, or are turned down for other loans.  After 6 months of favorable experience, PAL flyers will be added to lobby displays and will be included as a loan option on our Web site. Payday Lending: A REAL Solutions® Implementation Guide

Policies & Procedures: A separate loan policy for PAL will be developed and included in our loan policy manual. Procedures for accepting and processing PAL applications will be developed and included in our employee procedures manual. Measurements of Success:  At least 1% of our members will use this product and find it of value to them.  Delinquency and loan loss ratios will remain within the expected parameters.  Based on usage assumptions, we will save our members approximately $339,000 the first year using PAL versus a payday lender.

Policies & Procedures The following credit unions provided sample policies or procedures. These can be found in Section 3 as part of each respective credit union model:  Wright-Patt CU – Model 1  Northwest Community CU – Model 4  Hershey Federal CU – Model 5  Veridian CU – Model 6 Various model policies can also be purchased through the Credit Union National Association (CUNA). For a preview of Credit Union Model Policies: A Framework for Compliance, see: http://buy.cuna.org/download/25627_toc.pdf. Policy Guidelines for Payday Lending follow, as does the Better Choice Sample Policy.

Policy Guidelines for Payday Lending Note: Your policies and procedures will be based on the business model, technology and aggressive/conservative approaches of your product. Loan Name & Type: For example: Payday Alternative Loan (PAL), a short-term, closed-end loan Purpose: For example: The PAL is intended to provide members with a low-cost option to meet short-term cash needs, reducing dependency on high cost payday loans. The product fits the CU’s desire to provide members with products and services that fulfill their financial needs, while building long-term financial relationships with them. Eligibility: Outline who is eligible to receive this loan. Examples include:  Age requirement  Member in good standing  Established member for some time period  Checking or direct deposit requirements  Income requirements  Length of employment requirements  Has not caused the credit union a loss or is not in bankruptcy Loan Parameters: Outline loan specifics. Examples include:  Loan limits  Repayment period  Interest rate and any fees  Acceptable methods of payment  Any limitations as to number of outstanding payday or payday-alternative loans Payday Lending: A REAL Solutions® Implementation Guide

     

Any limitations regarding rollovers, number of loans within a specified time period or required cooling off period (i.e., member is prohibited from getting another payday loan until a specific period of time has passed) After a certain number of rollovers, will loan term be expanded to help with repayment? Will financial education or other intervention points be required? Will loan include a forced savings component? Credit check required? After a certain number of loan advances and timely repayments, will member be moved into a better-priced product?

Specify how loan declines will be handled and how any application fees will be collected. Remember, an application fee, in order to be excluded from the APR calculation, must be charged to all applicants, whether approved or not. Loan Documentation Requirements: Specify what is required at time of initial application and with each advance. Examples include:  Type of application  Current ID  Utility bill or other proof of residency  Proof of income  Verification of length of employment  Type of loan note and disclosures  References Lending Authority: Who has the authority to approve these loans initially and with each advance? For example, must the member always see a loan officer or will tellers be able to approve or make subsequent advances? Loan Portfolio Limits: Specify any limits as to the number or dollar amount of payday-alternative loans that the credit union will make. Specify any delinquency or charge-off threshold that will cause a review of the program. Collection & Charge-off Procedures: Specify collection activities that may be different from traditional loans. Short-term loans should require earlier and more aggressive collection practices. At what point will the loan normally be charged off? Loans to Employees, Officials, & Family Members: Will the approval process for payday-alternative loans to employees, officials and their family members be any different from other loans? If so, specify procedures. Loan Committee and/or Loan Officer Documentation: What records will be required of loan requests, both approved and declined? Will these loans be any different from other loans? If so, specify records required. Board Policy Review: How often will the board review this policy?

Payday Lending: A REAL Solutions® Implementation Guide

Better Choice Sample Policy The ______________ is designed to help ESTABLISHED members who need a small dollar loan to carry them until they receive their next regularly scheduled income check. The loan is designed for members to use instead of borrowing from a for-profit payday lender. ______________loans are for emergency situations, and not for an ongoing solution to member liquidity issues. The credit union’s goal is to educate members on wise financial management and budgeting so that the need for such emergency loans diminishes over time.

Initial Credit Limit Subsequent Credit Limit Interest Rate Interest Rate Method Repayment Terms

Credit Life/Disability Insurance Loan Deferments/Amendments Payment Fees

$250.00 will be granted to new borrowers. $500.00 limits are available after a borrower completes 12 months at the $250.00 level with no repayment issues. Variable, set by management, and may change at any time after proper notice is provided. Currently 18%. Simple interest. Advances must be paid in full within 30 days. Subsequent advances are not permitted until previous advances are repaid. Not available. Not available. By cash, payroll deduction, or automatic transfer. Application fee.

To qualify for a ______________loan, a Member must: A. Be at least 18 years of age and legally capable of entering into a binding contract. B. Be a Member in Good Standing at the time the loan is applied for and/or at the time each advance is made. C. Be an Established Member at the time the loan is applied for and/or at the time each advance is made. An Established Member is one who has belonged to the credit union for a minimum of 90 days and who has no “_____” record during the past 12 months. D. Be employed by the same employer for a period of six months, or be receiving verifiable fixed income for a period of at least six months, and must provide proof of income at the time the loan is applied for and/or at the time each advance is made. E. Sign the Truth-in-Lending Disclosure and all associated loan documents. This includes a special document that highlights the penalties that may be imposed for failure to repay the loan as agreed. F. Not in the process of filing for bankruptcy under any chapter of the bankruptcy code. No minimum credit score for the borrower is required. However, the credit union may run a credit check to better serve members for future loans and to provide counsel on their current financial status. The credit union will strongly suggest/recommend that members using the _______________loan attend credit counseling education courses as may be offered by ___________________________________________________________________. This Management Guideline is approved by the President/CEO on the date below, and replaces all existing management policies and guidelines related to __________________loans.

Payday Lending: A REAL Solutions® Implementation Guide

7. Marketing the Product Credit unions have very mixed responses when asked how aggressively they market or plan to market their payday-alternative product. Most indicate that word-of-mouth works best—particularly within credit union select employee groups (SEGs) or sponsor groups. Co-workers spread the news to their peers and the credit union benefits without having to invest a lot of money into advertising. When first launching a new payday-alternative product, credit unions are advised to start conservatively—perhaps targeting those members identified as already using PDLs. Others train staff to look for signs of financial distress within members and cross-sell the product, if appropriate. This section contains a sample marketing plan designed by CU Creations of the Montana Credit Union Network for Kootenai Valley Federal Credit Union. It includes many ideas and recommendations for public relations and media plans for an alternative payday lending program. In addition, the following credit unions have provided sample marketing materials and promotional information. These can be found in Section 3 as part of each respective credit union model:  Wright-Patt CU – Model 1: A Creditorial  Northwest Community CU – Model 4: Paycheck Today Web Site Information  Veridian CU – Model 6: PAL Web Site Information  1st Financial Federal CU – Model 8: Fast Ca$h Brochure  Rivermark Community CU – Model 9: PayDay Advance Loan Web Site Information

Marketing Plan 2008-2009 Alternatives to Payday Lending Loan Program Kootenai Valley Federal Credit Union Public Relations Plan Marketing Strategy: The purpose of this plan is to increase the awareness and volume of the Alternative to Predatory Lending Loans. Product: Alternative to Predatory Lending Loan Promotion: 1) Target Market 2) Special Incentives 3) Advertising Mediums

Current members and non-members To be determined Press releases, PSAs, community awareness functions, educational programs

Growth Forecast: Increase the number of new Alternative to Predatory Lending Loans ____% by ______________. Ideas & Recommendations: ✓ Target 25-to-45-year-old members, since they are most likely to use this product.

Payday Lending: A REAL Solutions® Implementation Guide

✓ Develop a short name for your loan that is catchy and encompasses the gist of the loan. Try to avoid using either competition-bashing terminology or gloomy expressions (such as “predatory”). Rather use a more positive and optimistic name for the program to emit a feeling of hope rather than despair. 

a tag line referring to your loan being a predatory (payday) loan alternative could be used (in small letters after the main name)



some suggested names of the program—NOW Loan, Fast Cash, No Hassle Cash, No Hassle Loan

✓ Find out why your community (and members) are using payday lending institutions. Consider conducting a survey or focus group. This could also provide an opportunity to educate consumers about your program. ✓ Force the savings accounts. When an Alternative to Predatory Lending Loan is made, make it mandatory to deposit a percentage to the share account. ✓ Offer your members ﬁnancial counseling by referring them to the Balance program. ✓ Require direct deposit of payments (if available). ✓ Use educational handouts explaining the cons of payday lenders and pros of your loan alternative. This marketing medium will help to sell your loan and educate your members. ✓ Have staff watch for clues to determine which members are likely using payday lenders. Provide staff with tools to educate members about the program. ✓ Fast turnaround is crucial. People want their cash immediately and are paying big fees for the convenience of these payday loans. Develop avenues to speed up the process. ✓ Partner with community service organizations (e.g., churches, Boy & Girl Scouts, Food Pantry, 4-H Club, Kiwanis, Rotary Club, County Help Line, Chemical Dependency) to provide ﬁnancial education. These organizations will likely know of individuals needing your product. ✓ Provide presentations to community service organizations (e.g., churches, Boy & Girl Scouts, Food Pantry, 4-H Club, Kiwanis, Rotary Club, Elks Club, County Help Line, Chemical Dependency). Focus on providing education to help consumers and make a stronger community. Provide handouts detailing the program to attendees. ✓ Provide presentations to large businesses and education centers in your community. Focus on providing education to help consumers and make a stronger community. Provide handouts detailing the program to attendees. ✓ Create several events to promote the program and generate good publicity. Or partner with other organizations for special events. 

ice cream social



live radio remote



credit union week open house

Payday Lending: A REAL Solutions® Implementation Guide

✓ Create events to draw youth age 0-12 (parents of these youth would be in the 25-45 age range). You can then cross-sell the Alternative to Predatory Lending Loan program to the parents. Maximize public relations (PR) opportunities by: 

child ID Program (you could partner with another organization)



Easter egg hunt



Valentine’s Day theme essay contest titled “10 Reasons We Love our CU”



credit union youth week



Halloween costume party or pumpkin decorating contest



visit Santa and have photos taken

✓ Make sure all of your PR (and advertising) materials contain information about your field of membership and who can join. ✓ Repetition is key. Since most credit unions have minimal advertising dollars to spend, it’s more important than ever to ensure you’re getting the word out about your program on a regular basis. ✓ Have staff watch for clues to determine which members are likely using payday lenders. Provide staff with tools to educate members about the program. ✓ Provide staff with as much training as you can, such as Internet webinars. If all staff is not able to attend, try and provide training to each at different times or report back to other staff to engage all staff in the program. ✓ Give your employees some sort of incentive for cross-selling this loan to members. Your front line people know who would use this loan. Some suggestions include money, days off, a staff fun day, credit union logo wear or food. Provide your staff with logo wear (for Christmas, etc.) and days/events on which to proudly wear it. ✓ Consider this: A credit union in Iowa has a PAL (Payday Alternative Loan) where they loan up to $1,000 to the member; half goes to the member and half to savings. After the loan is paid off, the money in savings is released. This could be a good way to encourage a continued savings account for your members. Payoff is within six months and payment is expected every pay day. ✓ As an incentive for new members and a good will offering, you could waive the $2 loan application fee for new members applying for the Alternative to Predatory Lending Loan. ✓ Rent a booth space or specific area at local community events to hand out information on your Alternative to Predatory Lending Loan. Consider handing out bottles of water with your name on them or any other small give-away. You could also partner with other organizations or businesses on this. ✓ Walk in or display a float in local parades, handing out candy and information about your Alternative to Predatory Lending Loan. ✓ Consider sponsoring sports events in your community. You can go as big as a half-time promotion at your local high school football game to sponsoring a local little league team. Get your name out there on youngsters’ shirts. Display photos of the team(s) sponsored in your lobby. ✓ Promote your Alternative to Predatory Lending Loan at your Annual Meeting. Promote your Annual Meeting to members to guarantee it is well attended. Your 2008 Annual Meeting could be the grand kick-off for the program. Payday Lending: A REAL Solutions® Implementation Guide

✓ Offer to host a Chamber of Commerce luncheon. Get to know your fellow businesses and help them get to know you. ✓ Survey your members! Find out why new members chose you—ask them when they open their account. Keep track of this and look at it quarterly. Do the same with your loan members—find out why they came to you for a loan. You will discover what marketing avenues are working for you.

Media Plan Ideas & Recommendations: ✓ Target 25-to-45-year-old members, since they are most likely to use this product. ✓ Statement inserts are the most cost effective way of advertising this promotion to current members. Develop two or three different inserts, distributing each of them three different times in statements. Printing is affordable and there are no postage fees. ✓ Have extra statement inserts printed to hand out in your lobby and place in with deposit receipts. ✓ Prepare a quarterly newsletter & Web page with an article on your Alternative to Predatory Lending Loan include in quarterly statements to members. ✓ Consider putting ﬂyers on cars at functions or ofﬁces you feel will have people attending that would use the Alternative to Predatory Lending Loan. ✓ Use tactics like the payday lenders use to get their clients. Flashy building colors, neon signs and short wording on advertising to get the message across quickly. Use these to bring the members in and then talk to them about using credit wisely as they become more familiar with your credit union. Build trust with them once they are comfortable with you. ✓ Stick with one theme per quarter. Use a different poster, insert, article, etc. all with the same theme each quarter to acquire consistency and recognition. ✓ Run ads in the local newspaper promoting the Alternative to Predatory Lending Loan. Use three different ads, if possible, use full color and at least 1/4 page in size. Keep in contact with the newspaper advertising rep. to take advantage of special offers. Advertising in the paper could also give you a better chance of having your press releases printed in the paper. ✓ Also consider and look into pricing for an online newspaper ad. ✓ Run three different, 30-second radio ads on the local radio station. Radio is a very cost effective media advertising tool. Run the same ad three times a day for eight weeks at a time. Repeat again using a different ad. ✓ Display 11 X 17 laminated posters promoting your loan in your lobby area. Also, consider asking local businesses or organizations that you have a relationship with to display posters in their staff break rooms. ✓ Consider a logo design. CU Creations can give you a bid for a basic black only logo. Also consider a tag line to use to promote your credit union. CU Creations has several tips for an image/branding plan to give your credit union that certain look or feel you want to portray to your members and the public. Payday Lending: A REAL Solutions® Implementation Guide

✓ Look into doing some banner advertising. Have banners made that you can use repeatedly (i.e., simple, no rates or dates included). ✓ Support the MT cooperative advertising campaign and use the “YOU” materials in all of your advertising. ✓ Use your member statements to advertise. Always include an advertising message on your statement reinforcing the worth of the Alternative to Predatory Lending Loan. Stick with three or four different messages, reinforcing the message contained in the other advertising pieces for the loan. ✓ Consider using member testimonials for marketing pieces in the future.

Payday Lending: A REAL Solutions® Implementation Guide

Sample Payday Loan Product Marketing for Kootenai Valley Federal Credit Union

Payday Lending: A REAL Solutions速 Implementation Guide

8. Managing Collections and Charge-offs It is likely there will be collection strategies unique to your PDL program. Most of the credit unions featured in Section 3 provided collection procedures which should be helpful to those starting new programs or those that want to improve collection techniques. This section provides some suggestions or considerations for underwriting criteria, collection activity, and managing losses.

Underwriting Suggestions:  

      



Consider a length of membership requirement, such as 30-to-90 days to build some history and a relationship with the member. Require the member have a checking account and/or direct deposit with the credit union. Requiring direct deposit is one of the best ways to minimize losses. Note: Credit unions may not be able to require direct deposit as a means of repayment of the loan, but they can require the member have direct deposit in order to be eligible for the loan. Obtain subprime credit reports to review the member’s history with payday lenders or other subprime lenders. Establish minimum income requirements and require proof of income. Request submission of two months of checking history to verify deposits and to observe NSF activity. If the member has a checking account with the credit union, consider limiting or eliminating courtesy pay while the loan product is in use. If a membership term is not a requirement, consider requiring members to submit a copy of a phone or utility bill to verify residency. Requiring some form of financial education in order to receive the loan will usually result in the member going elsewhere. Soft intervention points or some form of financial counseling for frequent users can be more effective. Employ a hard close to help the member understand how much he/she is saving by using the credit union product versus a payday lender, and that continued usage is dependent on timely repayments. Inform the member what to do if he/she cannot make payment on the due date. Build loyalty with the member. Limit the dollar amount (or the percent of net worth) of the PDL portfolio until the credit union develops a track record.

Collection Suggestions: 

   

Do an automated courtesy call a few days before the loan payment is due to remind borrowers of their loan obligation. More aggressive collection procedures are usually recommended for these short-term loans to riskier borrowers, such as calling them on the first day they become delinquent. If your loan model allows rollovers, suggest the member come in to extend the loan and repay any necessary fee. If the loan has been extended two or three times, consider a pay-down plan that extends the loan over a greater period of time with smaller, more manageable payments. Provide financial counseling to help over-extended members get back on their feet. Monitor this portfolio of loans closely so that changes to underwriting criteria can be made if delinquency and losses are greater than expected.

Payday Lending: A REAL Solutions® Implementation Guide

Charge-Off Suggestions:  

Depending on the term of the loan, be prepared to charge these loans off quickly—usually at 45to 90-days delinquent, unless the borrower is making efforts to repay. Set a loss ratio or dollar threshold at which time the program will be re-evaluated.

Payday Lending: A REAL Solutions® Implementation Guide

100

9. Education and Training Taking the time to educate staff members early about why the credit union is considering a paydayalternative product will make product implementation much easier. See Section 2 – Implementation Considerations.

Educating and Training Credit Union Employees All Credit Union Employees Should Understand:  The reasons for offering this product.  How their efforts will contribute to its success.  Specific techniques they can use to make new members comfortable in the credit union environment.  How to cross-sell services and encourage new members to access other products and services. Turn Staff into Effective Educators Suggestions for educating staff so they can become effective educators in turn include helping them understand…  …who uses PDLs and why;  …how helping people with limited incomes fits into the credit union’s values and mission;  …why users of payday lenders will benefit from the credit union’s alternative product; and  …the credit union’s plan to graduate PDL users into healthier financial habits. If part of the targeted market for the credit union’s payday-alternative loan is a new segment of members, such as immigrants or ethnic/racial minorities, with whom staff may be unfamiliar, the credit union should provide cultural diversity training in order to overcome negative perceptions and to help staff develop cultural awareness. Create an environment where staff members realize people like themselves use payday lenders. Have staff share experiences with the payday loan industry, whether from first-hand experience or through friends, family and credit union members. Hire from Within the Targeted Market Other techniques to educate staff and management and to help with development of products include:  Hiring employees from the payday lending industry  Hiring employees from within the targeted market area who reflect its language and cultural ethnicity Users of payday lenders often cite feelings of acceptance and respect which they find within PDL stores that eases concerns about obtaining a costly loan. Payday lenders often hire employees from within the neighborhood which helps to establish a sense of shared values and characteristics. Staff Sensitivity Training As part of its REAL Solutions® program for Montana credit unions, the Montana Credit Unions for Community Development (MCUCD) offered a webinar for participating credit unions on the subject of “Staff Sensitivity Training – Developing Compassion and Understanding.” Some of the points made by speakers are included here as tools to help other credit unions educate their staff.

Payday Lending: A REAL Solutions® Implementation Guide

101

Compassionate Communication  Language says it all in the most subtle of ways.  Delivering good member service has always been a priority of credit unions, including treating people with respect and dignity. Therefore, you are launching the new service from a good perspective!  Some members will have had experience with the public benefit system. In some cases this process may not have been positive and could impact how members will work with staff.  Compassionate communication and listening works well with all people and in particular people who are seeking assistance to overcome a crisis. For more information on compassionate communication, see the articles that follow on “The Art of Good Listening” and “The Art of Giving Advice.” Put Procedures in Writing Educating staff as to why the credit union is offering this non-traditional product is one step in the process. Expecting staff to properly and efficiently implement operational procedures requires those procedures be in writing and that employees are expertly trained. Operating procedures were covered in Section 6 and several credit union samples were provided for your use. Bear in mind, this is a riskier and non-traditional loan product, so employees may need additional training and checklists to ensure procedures are being carried out to minimize losses and costs to the credit union.

Payday Lending: A REAL Solutions® Implementation Guide

102

The Art of Good Listening – Three Steps to Doing it Well Article from the “Communicating with Passion” Web site at http://www.homestead.com/uziteaches/articles.html Good listening is one of the best and most loving gifts that we can offer to another person. This is especially true when somebody is hurt or upset about something and shares it with us. All too often, in spite of our good intentions, we find ourselves responding to others in ways that are not effective. Here are three principles that help us to respond with compassion and effectiveness when people share their feelings with us. 1. Listen with openness, not judgment. The first thing that people need when they share something that hurts or upsets them is a sense that it is safe to talk. That means that when they tell us what happened or how they are feeling, we will not judge, criticize, shame or blame them. This is what allows them to trust us and feel safe opening up. That we don't judge does not mean that we have no sense of right and wrong. What it does mean is that we put that aside and listen with compassionate ears. It is to focus on the heart that is sharing its hurt with us, rather than on our sense of right/wrong. 2. The key is the feelings and needs. The second thing that people want, after a sense of safety, is for their experience, and especially their feelings, to be understood. This is because the key to any situation is how the person feels about it. This attempt to understand how another is feeling in a given situation, and doing so with no criticism or judgment, is called "empathy." One excellent way to express empathy is to reflect back to the person what we imagine the experience was like. There is an art to doing this that is hard to convey in a short article; in my Communicating with Compassion course we spend the first four sessions on this. That having been said, here is a simple example: If somebody is sharing with us a story about how she was ridiculed for asking a certain question, we might ask ourselves how we feel when we are ridiculed. We would then reflect that feeling back and see if this indeed is how she felt. We might say, "So you felt embarrassed and humiliated." It is of course important to say this in a gentle tone and a caring way. It is remarkable how often a simple reflection of feelings, when done with no judgment or criticism, creates an initial sense of relief. It also tends to open the speaker's heart to share more of the experience. She might add that she was going to be with these people for the next 10 hours, and was concerned that they might ridicule her again. To which we might respond, "So you were feeling unsafe." This might go on for a few rounds. If we stay with reflecting feelings, with no judgment or criticism, and only a desire to understand the other's experience, the result will often be a sense of deep relief and the ability to arrive at a sense of resolution. 3. Wait before offering advice. We often have ideas and information that might be helpful to the other. And yet, it is very important to first understand and reflect the feelings, and only then to offer advice. When people are upset, what they need first, before anything else, is empathy. Only after the feelings have been heard and acknowledged are people ready for advice. Offering advice before that point might be well intentioned but is in fact misguided. It could easily result in people being irritated or hurt. (For an excellent introduction to the art of empathy, see "The Seven Habits of Highly Effective People," by Stephen Covey, pages 236-260. For a more in-depth discussion, see "A Way of Being," by the great psychologist Carl Rogers.)

Payday Lending: A REAL Solutions® Implementation Guide

103

The Art of Giving Advice: Three Steps to Doing it Well Article from the “Communicating with Passion” Web site at http://www.homestead.com/uziteaches/articles.html Giving good advice is a great gift. Yet, we sometimes run into trouble because of the way we offer it. The ability to give advice in a positive, constructive way is an art. Here are three points to help us offer advice with effectiveness and compassion.

1. Listen first. While this rule is true for all good communication, it is doubly true when we wish to give advice. Issues are often more complex than they initially appear. By first listening, we open a space for the speaker to more fully describe the situation and for us to more fully understand it. What is the point of offering advice based on partial information? In addition, when we listen first, it makes it more likely that the other will then listen to what we have to say. In the words of Dr. Marshall Rosenberg, one needs "connection before correction." It is empathic listening that establishes the connection.

2. Ask permission. Unsolicited advice is a major cause of grief among friends and family members. It can be experienced as unwelcome intrusion into personal business. It might also be seen disrespectful, as implying that a person is incapable of caring for himself and resolving his own issues. Asking if our advice is desired shows respect for others and prevents resentments. Here is one way to do this: "As I listen to you, there are some ideas coming up for me that you might find useful. Would you like to hear them?" It is very important to ask that question without attachment, from a place that both "yes" and "no" are equally acceptable responses.

3. Offer without insisting. It is worth keeping in mind that even after we have listened, we can never know with certainty what is best for another person. There is so much that we are not aware of. So we offer our insights, experiences and ideas, with the attitude that our advice is another point of view, and we trust the listener's inner wisdom to discern what is right for him or her. Giving advice is like a waiter in a fine restaurant who holds out a dessert tray and says to the patron, "here, if you wish," and the diner takes what is right for him. This has a practical advantage, as well. By not insisting, we increase the chances of our words being considered.

Payday Lending: A REAL Solutions® Implementation Guide

104

Educating Members How Much, When and Where? Try not to judge your members or potential members as to how they choose to conduct their financial business. Telling them what their financial goals should be may only result in resentment and the loss of a member. Your goal is to meet them where they are at in their lives today and to provide them with a needed product. You want to give them hope and a means of managing a financial crisis. New members who join in order to take advantage of your payday-alternative product may not feel comfortable initially in a traditional financial institution. If they were prior payday lender customers they are looking for fast, convenient transactions and they want to be treated with respect and dignity. Let them know they are welcome in your lobbies and that you value their business. Education then should not be your first order of business. Rather building trust and loyalty is your immediate goal. The payoff is a long term relationship that results in moving these members up the ladder to wealth-building. As they gain trust, they will begin to see the credit union as a financial partner. Make it Quick and Simple Find quick, simple methods to educate, or better yet, share information with members to help them make better financial decisions. The concept of educating or counseling members initiates the roles of teacher/student, which may be fine when the member wants to be educated. But it can also be demeaning to the member who isn’t interested in a lecture. Instead, use the closing process as an opportunity to validate your member’s decision to choose your credit union’s product and to reinforce the idea of returning to the credit union when or if another financial crisis comes along. The chart below compares Pennsylvania’s Better Choice loan with a traditional payday loan and is an excellent example of showing the member how much he/she saves by using the credit union loan. The member leaves the credit union fortified with the knowledge that he/she made a good decision and that the credit union will be there for future needs. This is also a good time to reinforce the importance of timely payments. Point out that late payments can result in a late fee and jeopardizes future loans. Encourage the member to contact the credit union quickly if a problem with payments emerges.

Better Choice vs. Payday Lending Better Choice – $500 for 90 Days

Payday Lending – $500 for 90 Days

18% APR $25 Application Fee

Fees and Interest equal to $15 per $100 borrowed every 14 days

Total cost after rebate: $40.09

Total cost for 90 days: $450

Amount in Savings Account: $52.25

Amount in Savings Account: $0

Payday Lending: A REAL Solutions® Implementation Guide

105

Create Intervention Points Find opportunities when members may be more receptive to education or counseling. Credit union executives debate the pros and cons of closed-end versus open-end payday-alternative loan products. The arguments for closed-end revolve around more opportunity for intervention points – that is, opportunities for discussion about the member’s financial situation with each loan application. Open-end proponents counter with arguments that loan disbursements are more efficient and the once-a-year renewal process is sufficient to look over the past year’s activity and to make suggestions for the member’s financial future.  Flag Repeat Borrowers Some credit unions require members to participate in some form of financial counseling or education after using the credit union’s PDL-alternative product “X” number of times. Others will argue such requirements are paternalistic and only send the person back to the payday lender down the street. Perhaps a more balanced response is to implement a system that flags repeat borrowers. These members can then be approached and encouraged to receive some form of financial counseling. Providing incentives to those who accept may encourage some, but not everyone will participate. The dilemma will be to decide how to handle those who pay off loans consistently, but decline any offers for counseling or help. If they have proven to be good members, it might be in their best interests and that of the credit union to continue the relationship even if help is declined.  Make a Better Offer Another intervention tactic is an offer of relief or a better-value product to the member who consistently uses the PDL-alternative product. If the person has established a good payment history with the credit union through its PDL product, perhaps it is time to graduate the member to a longerterm loan at a better interest rate. Such an offer may be the incentive the member needs to be receptive towards hearing about other credit union products and services.  Offer a Fresh Start A “fresh start” or 2nd chance checking and credit programs are opportunities to help members with previously flawed records rebuild good histories and move into other credit union services. Such programs offer additional junctures to connect with members and counsel them about financial management goals.  Help Them Save Similarly, a small savers or goal savers product gives member service representatives a tool for encouraging members to save for a future holiday, vacation or other goal. Such products usually feature a small initial investment with periodic deposits so that the savings hurdle is less burdensome. Take Inventory of Your Credit Union Products Think of intervention points as “just-in-time” educational opportunities to migrate your PDL-alternative borrowers into more traditional credit union services. But these intervention occasions require staff perception of the opportunity at hand and the right products in the credit union arsenal to fulfill the need. Credit unions should consider completing an inventory of their current products and services and then determine where gaps exist when it comes to helping their members move up the ladder to wealthbuilding. Including front-line staff in this process will help them become more aware of members’ needs and products to fit these needs. Be Ready When Your Members Are Ready Financial education has arguably been a credit union stronghold since the movement’s inception, absorbed into the credit union philosophy of “people helping people.” As such, it is frustrating to watch members make repeated financial mistakes and yet shun offers of assistance. However, when they are ready for some form of financial help, credit unions should ensure they have programs available to assist their members. Payday Lending: A REAL Solutions® Implementation Guide

106

Whether these services are available internally or offered through external partnerships or referrals depends on the credit union’s resources and philosophy towards member education. Training employees to be financial counselors requires an investment in time and money; then of course, there is the challenge of retaining them. Finding trustworthy external partners can also be challenging and requires your members to go elsewhere for help. Yet if that assistance is more expertly shaped to their needs, that alternative may be the better one. A classroom-type of educational seminar enables the credit union to reach out and school several people at one time and can be effective for certain types of classes— such as building a better credit report, developing a household budget, preparing to be a first-time homebuyer, or living singly again. Using community resources to provide some of the training can help with budgetary limitations and builds relationships with outside groups that can be mutually beneficial. The following are some adult education programs and resources available to credit unions. 

In-house Certified Financial Counselors – CUNA offers both Certified Financial Counselor Schools and self-study Financial Counseling Certification Programs (FiCEP). For more information about these programs, go to: http://training.cuna.org.



Member Financial Counseling Programs  Accel – a CUNA Strategic Services provider that features full service counseling. For more information, to go: http://finlit.cuna.org/index.html.  Balance – a financial education and counseling service. For more information, to go: http://www.balancepro.net/.  FoolProof – a CU Strategic Partners provider that features an interactive online suite of financial literacy modules that can be used by parents, adults, young adults, college-aged people, high schools and community groups. For more information, go to: www.colocu.com/foolproof.  InCharge Debt Solutions, Inc. is a non-profit organization specializing in personal finance education and credit counseling. For more information, go to: www.incharge.org or www.inchargefoundation.org. InCharge has also developed BrightScore to provide consumers with the information and tools they need to understand and proactively manage their consumer credit reports and scores. For more information, go to: www.brightscore.com.  The Kansas Consumer Credit Counseling Service has an on-line Financial Management Course available. For more information, go to: http://www.kscccs.org/index_files/Page476.htm



Financial Education Resources  National Endowment for Financial Education (NEFE) offers “Help for Consumers” at its Web site at: http://www.nefe.org/HelpforConsumers/tabid/64/Default.aspx. Its Financial Literacy Resource Center is a collaboration of free, unbiased materials contributed by many organizations. For example, in its “Smart About Money” section, Bethpage Federal Credit Union provides a 13-page interactive Credit Management Coach guide.  MyMoney.gov is the U.S. government’s Web site dedicated to teaching Americans the basics about financial education. It can be accessed at: www.mymoney.gov. It includes a free “My Money” toolkit which contains 7 different publications, one of which is FDIC’s “Money Smart” program – a 10-module training program to help adults enhance their money skills. More information about the Money Smart program is also available at FDIC’s website: http://www.fdic.gov/consumers/consumer/moneysmart/overview.html.  The Federal Trade Commission offers a lengthy list of consumer information regarding credit cards and loans at: http://www.ftc.gov/bcp/menus/consumer/credit/loans.shtm.  Check out CUNA’s Consumer Web site that lists various tools and financial literacy information available for consumers. It can be accessed at: http://finlit.cuna.org/index.html.  CUNA also has a 14-page list of financial literacy information available at: http://finlit.cuna.org/download/financial_literacy.pdf.

Payday Lending: A REAL Solutions® Implementation Guide

107



Partnerships & Referrals  Consumer Credit Counseling Service (CCCS) is a network of 115 nonprofit agencies that are members of the National Foundation for Credit Counseling (NFCC). NFCC sets the standards to which all member agencies adhere, including a code of ethics. All counselors must be certified. Along with debt management programs, CCCS provides community education programs on budgeting and managing credit. For more information about NFCC or to find a CCCS agency near you, go to: www.nfcc.org.  Park Side Federal Credit Union (Park Side FCU) partnered with Northwest Montana Human Resources to provide four, 10-session financial education courses, with 40 families participating in each session. Mentors from the credit union and the business community are provided for each family for up to one year to provide support and advice, as necessary. After completion of the course, participants can open checking accounts at Park Side FCU regardless of past history and have access to a line-of-credit up to $300. Northwest Montana Human Resources hopes to replicate this program throughout Montana and the U.S., if possible. For more information about the program, contact Angie Meehan, Director of Marketing at ameehan@parksidefcu.com.  Other potential partners include:  advocacy groups  cooperative extension agents  workforce services  colleges/universities/trade schools  nonprofit organizations  offices of public instruction  YWCA/YMCA  social services agencies

Payday Lending: A REAL Solutions® Implementation Guide

108

10. Measuring Success What measurement criteria will you use to determine if your new loan product is successful? There are at least five different measurement tools that can be used.

Income Goals Depending on your pricing strategy (i.e., to make a profit or break-even), income goals may or may not be a measurement of your product’s success. At the least however, you should track income from the loan product to ensure it is sufficient to cover losses. Most credit unions will want to cover some or all of their operating expenses associated with the product as well. If the loan product is losing money, the credit union can make the decision how long it will continue to provide the loan as a loss leader or what changes to make to the product to increase revenue or to cut costs.

Volume & Growth Goals Some potential statistics or demographics to track include:  number or percent of members using the product  number of new members that joined the credit union to use the product  number and $ amount of advances made  average age of member using the loan product as compared to average age of overall membership or average age of all borrowers (i.e., are you reaching a younger market?)

Loss Goals When your credit union made the decision to offer this new loan product, you more than likely set some caps or thresholds for losses and delinquencies. Have you been able to stay under the thresholds or do you need to make some changes to collection or underwriting practices to reduce losses?

Savings to Members How much have your members saved using your loan product versus a payday loan? You can either find out what the average payday lender is charging in your state or use the national average of $17.50 per $100 for a 14-day loan. That’s a daily interest rate of 1.25% compared to .0493% for an 18% APR loan. A member who used a credit union loan of $500 for 30 days at 18% would pay $7.40 in interest as opposed to $187.50 that would be paid to a payday lender for the same amount and same period of time. Even if the credit union charged a $15 application fee, the member still saves $165.10 by using the credit union loan product. This savings is one of the biggest benefits/impacts your program is providing your members. Don’t be ashamed about how many members are using your payday-alternative loan product. Flaunt the amount you are saving your members. Tell your members, tell your board and staff, tell your community, and tell your policy makers. Your credit union can also be part of the nationwide effort to track this information by logging onto the REAL Solutions® Impact Center at www.realsolutions.coop, click on “Get Involved” tab, click on “Calculate Your Impact,” “Register Your Credit Union,” and then “Calculate Your Payday Loan Product’s impact.” You will be asked a few questions about your program, after which the survey tool will calculate your savings to your members and add it to the growing nationwide savings sum.

Graduating Members into Other Services Graduating your members into more traditional and better-valued products should be the ultimate and longer-term goal of any payday-alternative loan product. It is also the most difficult to track.

Payday Lending: A REAL Solutions® Implementation Guide

109

Here are some suggestions dependent on your data system capabilities:  



Assign some form of identifier code to members who use your payday-alternative loan product. This identifier should be retained whether the member continues to use the loan product or not. It will be a means of identifying service usage in the future. Calculate average services, accounts, share and loan balances, and/or profit per individual for those using your loan product. Compare the average with your remaining members. Over the span of some years, calculate the same averages for your members who previously used the loan product, but no longer do so. These comparisons can indicate how successful you’ve been in moving people up the wealth ladder and whether they are becoming loyal and active credit union members. Calculate the average membership tenure for those using the loan product, those who have never used it, and those who previously used it. As the number of those who previously used the product increases, you can track retention, another indicator of member loyalty. If possible, you may also want to track those who previously used the product but have since closed out their membership. This could be an indicator that the credit union didn’t sufficiently meet their financial needs once they no longer needed a short-term cash loan. Compile and disburse anecdotal stories of members whom you have helped with your paydayalternative loan and how they subsequently graduated into other products – in particular, those who became homeowners, business owners, investors, college grads, etc., through your credit union’s tutelage or guidance.

Payday Lending: A REAL Solutions® Implementation Guide

110

11. Other Resources and References “American Workers: Getting Ahead or Just Getting By?” a 2008 study from Alliant Credit Union and The International Society of Certified Employee Benefit Specialists (ISCEBS) finds that American workers are struggling to get ahead financially and they’re looking to their employer for help. The study can be accessed at: http://www.iscebs.org/PDF/surveys/acuwp908.pdf. “Driven into Debt: CFA Car Title Loan Store and Online Survey,” a study by the Consumer Federation of America (CFA) that reports the results of 81 store surveys in 11 states and 17 online title lenders. The findings include the fact these loans are extremely expensive and that lenders structure their loans to evade state usury or small loan rate caps. The study can be accessed at: http://www.consumerfed.org/pdfs/Car_Title_Loan_Report_111705.pdf. “For a New Thrift: Confronting the Debt Culture” is a jointly authored report from the Commission on Thrift. One of its members is Ken Eiden, CEO of Prospera Credit Union. Copies of the report are $7 and can be ordered at: http://www.newthrift.org/descriptions.htm#report. “Low-Cost Payday Loans: Opportunities and Obstacles” by The Annie E. Casey Foundation describes several payday loan alternative models, including North Carolina State Employees’ Credit Union’s Salary Advance Loan, North Side Community Federal Credit Union’s Payday Alternative Loan, Pentagon Federal Credit Union’s Asset Recovery Kit, as well as bank and payday lender models. The study can be accessed at: www.aecf.org/upload/publicationfiles/fes3622h334.pdf. National Federation of Community Development Credit Unions’ Best Practices for payday-alternative loans: http://www.cdcu.coop/i4a/pages/index.cfm?pageid=902. “Payday Lending Demographic and Statistical Information: July 2000 through December 2007” – summary information prepared for the Colorado Uniform Consumer Credit Code (UCCC) from Colorado’s payday loan industry. The summary provides a view of the growth of the industry in Colorado and demographic information of the borrowers. It can be accessed at: http://www.ago.state.co.us/UCCC/AnnualRpt/ddlasummary2007.pdf. Visit the REAL Solutions® Impact Center for additional resources for payday loans: http://www.realsolutions.coop/solutions/loans-and-payday-lending/payday-lending/existing-memberalternatives. “Strategic Pricing of Payday Loans: Evidence from Colorado, 2000-2005,” a study of pricing patterns of payday lenders in Colorado prepared for the Federal Reserve System Community Affairs Research Conference in 2007. The authors find payday loan prices gravitate quickly toward legislated price ceilings. They also found that payday lenders are more likely to locate in well-branched banking areas because customers must have a checking account. As such, bank branches act as a complement to payday lending. The study can be accessed at: http://www.chicagofed.org/cedric/2007_res_con_papers/car_48_deyoungphillips_fedcommaffairsconf_715_pr eliminary.pdf. Additional information and resources follow:  Alternative Credit Reporting Services (Exhibit 1)  Teletrack  CL Verify, LLC  Payday Loan Systems (Exhibit 2)  TranDotCom Solutions  Acronyms (Exhibit 3)

Payday Lending: A REAL Solutions® Implementation Guide

111

Exhibit 1. Alternative Credit Reporting Services Teletrack 5550-A Peachtree Parkway, Suite 600 Norcross, GA 30092

www.teletrack.com Contact: Paul Worden, National Account Director of Sales (800) 729-6981 pworden@teletrack.com Founded in 1989, Teletrack, an FCRA-compliant consumer reporting agency, gathers records from businesses across the country who cater to non-traditional credit consumers. Teletrack delivers data and decisioning solutions to a variety of businesses including payday loan companies, rental purchase stores, non-traditional credit consumer finance businesses, non-prime auto lenders and credit unions. Data delivered includes: credit inquiries, account charge-offs, paid charge-offs, and open loan data from businesses whose target market is primarily high-risk, non-prime consumers. Teletrack databases also include landlord/tenant court records from across the U.S. and consumer bankruptcy data.

Frequently Asked Questions: How can a credit union use Teletrack? Merchants or credit unions can choose to use Teletrack for three purposes: 1) To inquire whether the customer has a PDL outstanding or a recent inquiry, any charge-offs or paid charge-offs, or any loans with rent-to-own stores or buy-here/pay-here stores. 2) To obtain a PDL-specific credit score based on: a. Storefront Model – an empirically derived Regulation B compliant score based on application data and Teletrack’s data. Used by brick and mortar based lenders. b. Cyberscore Model – an empirically derived Regulation B compliant score based on Teletrack’s data only. Used by lenders issuing loans via the Internet. c. Pass/Fail Score – not empirically derived or regulation B compliant, based on Teletrack’s data only. 3) Decision Manager along with a credit score – This option allows a credit union to define underwriting characteristics it would like to use in its decision, such as maximum current loans, maximum loan amount, maximum number of rollovers, maximum number of consecutive loans, etc. These “rules” can be credit-union specific.

Payday Lending: A REAL Solutions® Implementation Guide

112

What are the costs associated with using Teletrack? The least expensive method for credit unions to access Teletrack is through Internet access and a web browser. The credit union receives a merchant ID and pass key to pull up a credit report or to report back to Teletrack. Costs for this basic service are based on the number of inquiries a credit union expects in a month’s time, as follows: a) $85/mo. for 45 inquiries b) $95/mo. for 55 inquiries c) $105/mo. for 75 inquiries After reaching the maximum number of inquiries based on the different plans, there is a charge per inquiry of about $.79. A credit union can change from one plan to the other as experience dictates. There is no additional charge for reporting activity. What information is included in a credit report? The credit report will go back seven years by law. The credit union can indicate how much inquiry history it wants. The report provides a list of inquiries, open and paid charge-offs, whether the Social Security number was issued within the past five years, whether not issued or issued to a deceased person, landlord tenant court records and optionally, credit score, decisioning, OFAC and bankruptcy information. How many merchants are using Teletrack? Teletrack is used by approximately 15,000 merchants with high risk customers that don’t normally report to the major credit bureaus. About 70% of payday lenders and other sub-prime merchants, such as rentto-own stores, and buy-here/pay-here auto finance companies report to Teletrack. How many credit unions are using Teletrack? There are approximately 85 credit union merchants. Credit unions can also do a “data scrub” to learn how many of its members are using payday lenders. What is the cost to do a scrub? The cost is $500 regardless of the number of accounts to do a data scrub, for what Teletrack calls a summary analysis of a “retro-active append.” Credit unions provide Teletrack with a list of its members including Social Security numbers, names and addresses. Teletrack can go back as far as seven years, if desirable. The analysis provides a summary for 3-, 6-, 9-, 12-, 18-, and 24-months of the credit union members’ activity with merchants in its data base. Can a credit union find out which of its members are using payday lenders? Teletrack can provide the raw data and credit attributes along with the summary analysis. The incremental cost for raw data and attributes is $500. The total cost for both the summary analysis and the raw data is $1,000. Sample consumer reports can be found at the following Web site: http://www.teletrack.com/brochure_pdfs/consol.pdf. Note: Cost and product information was collected in November, 2008. It may have since changed. Credit unions should contact this provider for up-to-date cost and product information before deciding to proceed. This information does not imply an endorsement by the National Credit Union Foundation (NCUF).

Payday Lending: A REAL Solutions® Implementation Guide

113

CL Verify, LLC 3030 N. Rocky Point Drive, Suite 670 Tampa, FL 33607

www.clverify.com Contact: Tanya Boggs, Director of Marketing (727) 373.2500, ext. 108 tboggs@clverify.com

CL Verify, LLC is a credit bureau providing data and decision support solutions for near-prime lenders. Its solutions are built on a proprietary and ever-expanding source of consumer identity, fraud, payday advance, and demand deposit account data to provide lenders with a comprehensive network of information for mitigating risk and preventing identity fraud. CL Verify’s network of near-prime lenders provides unique data about high-risk loan applicants not available through traditional credit reporting channels.

Frequently Asked Questions: How can a credit union use CL Verify? CL Verify has a state of the art technology system designed to integrate a customer’s access via FTP, XML or through the Web. Customized integration is also available. What are the costs associated with using CL Verify? Decision support tools provide for varied levels of billing structures from per inquiry to bundled pricing. The minimum charge to a client to integrate with CL Verify is $50 per month. What information is included in a credit report? CL Verify currently offers more than10 different reports for our clients based on their needs. Information regarding these reports can be accessed at the company’s Web site under the “Solutions” tab. An example of a report summary is attached below. How many merchants are using CL Verify? CL Verify currently has thousands of active merchants in the US using its decision support tools, including credit unions. Client relationships are treated in a confidential manner. Note: Cost and product information was collected in November, 2008. It may have since changed. Credit unions should contact this provider for up-to-date cost and product information before deciding to proceed. This information does not imply an endorsement by the National Credit Union Foundation (NCUF).

Payday Lending: A REAL Solutions® Implementation Guide

114

Example Report Summary from CL Verify, LLC Report Summary Applicant Information

Quick View

SSN: Name: Address:

Merchant: Report Date: Tran Code: Event position:

CL Verify 2008 - 6-18 09:04:53 A1A1A1 6 Event Purchased Count: 0

Score Approved

100 N/A

Phone: Work Phone: Birth Date:

123-45-6789 JOHN SMITH 3030 N. Maple Drive St. Petersburg, FL 33703 727-475-4092 727-452-1409 09-29-1965

ABA: Account:

12376598 988899

DL State: DL Number: Requested:

FL S62112345670 150.00

Model CLV Amount:

Reasons: SSN mismatch with name submitted and name in debit files Account closure due to fraud Unpaid bad loans in last 90 days Bad loans over 180 days

5X 4A 5U 5W

Consumer Information Name on file:

JOHN SMITH

Address Information 3030 N. Maple Drive St. Petersburg, FL 33703

3030 N. Maple Drive St. Petersburg, FL 33703

950 Central Street Largo, FL 33771

PDA Report Inquiries

Loans Bad Loans: Last Bad Loan Date Total Open Loans: Last Loan Date: Loans Past Due: Loans In Collections: Loans Charged Off: FDIC Loan Days:

3 04-06-2008 3 04-06-2008 0 0 3 0

Recent Inquiries: Last Inquiry Date: Total Inquiries: Total Lenders: Recent Lenders:

Other 5 6-18-2008 15 10 5

MICR SSNs: Phone Consumer Count: SSN Quick Check: Consumer Status:

5 4 Good Normal

Loan Detail Loan Date 04-06-2008 03-26-2008 03-26-2008 03-25-2008

Status Written Off Written Off Written Off Paid

Lender Easy Money Friday Funds Hard Cash Front Ya

Amount Paid Date 300.00 300.00 300.00 300.00

Phone 800-999-9999 435-777-7777 302-666-6666 877-999-9999

Inquiry Detail Inquiry Date 06-18-2008 09:04:36 06-18-2008 09:04:34 06-18-2008 09:04:08 06-18-2008 09:03:54 06-18-2008 09:03:48 04-06-2008 12:37:08 04-06-2008 12:34:59 04-06-2008 12:34:49 03-25-2008 14:32:25 03-25-2008 14:32:23 03-25-2008 14:32:23 03-25-2008 14:32:17 03-25-2008 14:32:12 03-25-2008 14:32:11 03-25-2008 14:22:47

Lender

City, State, Zip

Phone

Mr. Money Bags Friday Funds Hard Cash Show me the Money Payday is NOW Easy Money 4U Have Money Now Mr. Money Bags Mr. Money Bags Deep Pockets Friday Funds Hard Cash Payday is NOW Everyday is Payday Front YA

Sliema, FL 11111 Logan, UT 84341 Newark, DE 19711 Salt Lake City, UT 84106 Salt Lake City, UT 84111 Carson City, NV 89701 Salt Lake City, UT 84101 Sliema, FL 11111 Sliema, FL 11111 Espanola, NM 87532 Logan, UT 84341 Newark, DE 19711 Salt Lake City, UT 84111 Atlanta, GA 30326 Spokane, WA 99201

204-999-9999 435-777-7777 302-666-6666 516-222-2222 866-888-8888 800-999-9999 801-333-3333 204-999-9999 204-999-9999 866-888-8888 435-777-7777 302-666-6666 866-888-8888 800-888-8888 877-999-9999

Payday Lending: A REAL Solutions速 Implementation Guide

Merchant : ID Inq. Freq 5 4 3 2 1 3 2 1 7 6 5 4 3 2 1

115

Exhibit 2. Payday Loan Systems

TranDotCom Solutions 955 Cobb Place Blvd., Suite A Kennesaw, GA 30144

www.trandotcom.com Contact: Frank Cotton, Corporate Account Executive (678) 355-1551, ext. 1278 frank.cotton@tdcemail.com

TranDotCom (TDC) Solutions provides a full range of software and transaction processing services which allow short-term loan merchants to be very competitive and efficient in the marketplace. Its core solution is the Loan Management System (LMS) which has been processing web-based transactions since 1998. The basic core model provides loan application processing, customized underwriting review, loan documentation, renewal and collections management. Funding can be in the form of cash, ACH, check or debit card.

Frequently Asked Questions: How can a credit union use TDC Solutions? Whereas TDC offers credit unions a complete Internet application process that can be linked to the credit union’s Web site with TDC’s call center providing final verification of customer identification, most credit unions prefer to use the in-store or branch verification process. The software enables the credit union to take the application, customize its underwriting process, return a pass/fail decision within seconds and print out the loan documents or adverse action letter. As part of the underwriting process, TDC can include reports from one to three subprime reporting agencies. The credit union does its own employment verification. The flow process for both the branch and Internet models follow (Illustration 1). In addition to simplifying the lending process, TDC can provide over 130 reports to help credit unions manage their short-term loan portfolio. Report information is covered in more detail below. What are the costs associated with using TDC? The cost for the basic software is $4,600 – a one-time fee. In addition, there is a fee associated with each loan transaction that varies with volume, but averages between $2 and 2.50 per loan. If the credit union obtains a credit check from a subprime reporting agency, the fee for each report is between $.40 and $.88. Payday Lending: A REAL Solutions® Implementation Guide

116

The cost per loan for the Internet-based system with TDC’s call center verifying employment is much more substantial at $32 for loan origination and $10 for loan renewal.

Illustration 1

Short Term Loan Channels & Process Internet Credit Union Website #1

Member or Customer comes into branch #1 Provides Pay Stub CSR reviews Member Statement & verifies information

Marketing Source Marketing Website w/Application Pages and E-signature

Inputs application into a Loan Management System & hits submit

LMS Underwriting rules - Credit Quality - Regulation

Fund loan via cash, check, ACH, or Debit Card

LMS Underwriting rules - Credit Quality - Regulation

Sub Prime Credit Bureau #1 #3 -Auto Denial Reasons - Scoring

CSR has Member sign loan documents

Loan Management System

System automatically underwrites loan Approved or Denied Loan Documents w/APR & ACH Authorization or adverse action letter are auto populated to screen & printed

Marketing Source

Approved or Denied Tentatively -Loan Documents w/APR & ACH Authorization are auto populated instantaneously for customer to sign

TranDotCom Turbo Cash Solutions

Branch

Sub Prime Credit Bureau #1 #4 -Auto Denial Reasons - Scoring Sub Prime Credit Bureau #2 #5 -Auto Denial Reasons - Scoring

Final Verification Process

-Call Center does 4-8 processes to further verify the customer and process If OK – Loan Originated & Funded Via ACH

What information is included in the reports? Over 130 reports are available to merchants and reporting is in real-time. Many of the reports have query capabilities so credit unions can pull data from a date range or by branch. The information can be exported into other programs such as Excel to be analyzed in various ways, or to print mailing labels for a marketing campaign. The reporting is available in two sections: one for employees and another with roll-up summaries for management-level employees. An example of a Daily Balance Summary Report follows. How many merchants are using TDC? Over 150 clients are using TDC software with a little more than half offering loans via the Internet. There are more than 1,300 storefront locations currently using the LMS. How many credit unions are using TDC? TDC has about 15 credit union clients. Note: Cost and product information was collected in November, 2008. It may have since changed. Credit unions should contact this provider for up-to-date cost and product information before deciding to proceed. This information does not imply an endorsement by the National Credit Union Foundation (NCUF).

Payday Lending: A REAL Solutions® Implementation Guide

117

Page 1 of 2

Example Daily Balance Summary Report from TranDotCom Solutions Daily Balance Summary Report Balance Date:

11/7/2008

Details?

Get Report

Merchant# 60000

Name: Demo Call Center

Store# All Stores

Name:

Balance As Of: 11/7/2008 Current Date: 11/7/2008

On 11/7/2008 Month To Date Year To Date Last Month On 11/2007 $0.00 $0.00 $512,703.15 $700.00 $0.00 $0.00 $0.00 $2,785.09 $0.00 $0.00

Prin. Loan Amt Paid Renewal Fees Paid Loan Fees Paid

$0.00

$104,238.40 $275.00

$0.00

Totals: $0.00

$0.00

$619,726.64 $975.00

$0.00

$150.20

$1,512.50

$0.00

$0.00 $0.00 $0.00 $0.00 $0.00

$1,396.50 $30,052.27 $300.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00 $0.00

$150.20

$33,261.27

$0.00

$9,674.00

$975.00

$0.00

$641,801.41 $0.00

$0.00

Totals: $0.00

$0.00

$651,475.41 $975.00

$0.00

(Includes Cash And ACH Payments)

Total NSF Prepayments Total NSF PrePmts Applied To Prin/Fin. Total NSF PrePmts Applied To NSF Fee/Late Chg. Total NSF Paid Total NSF/Late Fees Paid Total Bankruptcy Payments Total ChargeOff Payments Total Customer Refunds

Totals: $0.00 Total Store Cash/Check Payments Total Store ACH Payments

Total Prin. Of New Loans Total Fees Of New Loans Total Prin. Of ReNewed Loans Total Fees Of ReNew Loans

$0.00 $0.00 $0.00 $0.00

$145,725.00 $36,356.25 $36,055.00 $8,006.58

$1,200.00 $300.00 $0.00 $0.00

$1,700.00 $425.00 $0.00 $0.00

Avg Size of Loans

$0.00

$483.46

$400.00

$425.00

Avg Duration of Loans (Days)

9.86

9.5

# of New Loans Processed # of ReNew Loans Processed

0 0

313 63

3 0

4 0

376

Finance

NSF/Late Fee

Total

Totals: 0 Count

0 Today's Summary Principal

Payday Lending: A REAL Solutions速 Implementation Guide

https://www.trandotcom.com/loanmanager/DailyBalance.Asp

118

11/7/2008

Page 2 of 2

Return Items Today NSF/Bankruptcy Items OutStanding ChargeOff Items OutStanding OutStanding Loans

$0.00

318

$97,539.88

$21,969.57

$45,388.25

$164,897.70

93 442

$18,284.37 $331,777.72

$5,387.50 $59,702.00

$2,426.00 ($124.00)

$26,097.87 $391,355.72

Delinquency Percentage(Deliq % calculated by total of NSF Prin + NSF Fees divided by total NSF Prin + NSF Fees + Outstanding Prin. + Outstanding Fees) Total OutStanding Total NSF/Bankruptcy

Count 442 318 Totals 760

Percentage 41.84%

Principal/Finance Amount $391,479.72 $119,509.45 $510,989.17 23.39%

Payday Lending: A REAL Solutions速 Implementation Guide

https://www.trandotcom.com/loanmanager/DailyBalance.Asp

119

11/7/2008

Exhibit 3. Acronyms ACH – Automated Clearing House. The ACH Network is a nationwide batch-oriented electronic funds transfer system governed by the NACHA OPERATING RULES which provide for the interbank clearing of electronic payments for participating depository financial institutions. The Federal Reserve and Electronic Payments Network act as ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries. http://www.nacha.org/About/what_is_ach_.htm APR – Annual Percentage Rate CLOSED END LOANS – require a new loan process for each advance including application, loan forms and disbursements. NCUA – National Credit Union Administration OPEN END LOANS – allow for multiple loan advances using a single loan document. PAL – Payday Alternative Loan PDL – Payday loan SEG – Select Employee Group

Payday Lending: A REAL Solutions® Implementation Guide

120