Holiday Loans
Posted by Trey Reeme on November 12th, 2007
I participated in a Twitter conversation this morning sparked by this CUNA News Now story.
I was reminded of Don’t buy stuff you cannot afford.
It was brought up that “People are going to do it no matter what. Would you rather they go to a check cashing co or a CU?”
My reply was that I would rather them go to a CU than a payday lender. I just wish the CU would automatically open a Holiday Club account with every new loan to help these folks pay for next year.
“People are going to do it no matter what. Would you rather they go to a check cashing co or a CU?”
Seriously? Why not open The Crack Addict’s Credit Union undhttp://cuskeptic.wordpress.com/2007/11/12/the-crack-addicts-credit-union/er the same umbrella? Read my full take here
Good to see that this post gave the CU Skeptic post fodder…
And your kids are going to try drugs so why not just GIVE them the drugs!!
I agree – I cannot STAND that lame argument.
We have failed miserably in the “promoting thrift” cause and it shows. Christmas Club, paying yourself first, borrowing for provident and productive purposes??? Have those really gone out of style?
If people want to over-extend themselves, let them do it at a Pay Day lender. Don’t enable bad behavior.
Gheez…..that felt good.
What business ARE we in people???
Oh, jeez. On the one hand, at least these folks aren’t going to get robbed blind by the payday loan people. On the other hand, maybe they should be required to do some sort of financial planning class to get the loan!
Also, this is Detroit we’re talking about. Not exactly the most prosperous region. If somebody wants to take out a loan to take the kids to visit the grandparents or whatever, and is willing to do the payroll deduction thing, AND meets the requirements, I don’t know why we should be looking down our noses & pointing fingers. It’s not like we’re talking thousands of dollars. $300? For one shot, instead of a credit card? It seems pretty straightforward to me.
Although yes, it would be nice if they helped the members immediately open a Holiday Savings account. Maybe part of the loan payment went directly into that account, and couldn’t be touched until next November. That would be both innovative and thrifty.
@Elaine: Are you suggesting actual requirement and responsibility in regards to cu membership and participation?! Gasp… ;)
Way to create a straw man, folks. We’re not talking about gamblers, etc., we’re talking about people consolidating loans during the holidays and buying presents for people. Is a savers club a better idea? Sure! But are people going to incur debt over the holidays? Absolutely. Are you going to serve the market or not? Again, if the behavior is legal and unavoidable, what’s the better choice: a payday lender and no financial counseling or a credit union that will make the loan at a lower rate and hopefully help the member move away from needless borrowing.
I suppose you don’t think credit unions should buy check cashing companies either.
@Rob: I’ve taken some deep breathes and counted to ten. So here we go…
1) I have not taken issue with the specific program at Detroit Municipal or it’s members. It may be a program built in response to community but I don’t know enough about it or the community it serves to talk to that situation.
2) What I do take issue with is this notion that holiday debt is “unavoidable” and that the cu response should be to embrace it. A couple of things come from this:
a) If consumer behaviors are unavoidable and therefore cannot be influenced, I motion that Principle #5 of the CU Cooperative Principles be removed. There is no point in education, training, and information if it cannot change behaviour.
b) As far as I can tell, credit unions are supposed to be setup to serve communities, not individuals. It’s easy to say that granting a payday loan to a certain individual is the “right thing” for a CU to do, but if that loan does not benefit the community, it’s not the right thing for the CU to do. (By ‘benefit’ you can use as many bottom lines as you want, but at the end of the day, it still needs to benefit the community.)
So is it better to offer a member a holiday loan with no education or send that member to a payday lender? The answer lies in the community served, not in the individual.
Rob, Not a straw man argument, IMHO – the CU never said the loans were for consolidation.
Like I said, it could be viewed as better than members standing in line in the payday loan shop.
Were I doing such a promo, I’d automatically open a Christmas Club account for each member getting a loan and match the loan fees charged on the loan as the first deposit for next year’s account. I’d say “let’s put $6 per week into this account so next year we won’t need to do this loan again as bad.”
I’m not calling these loans evil. However, I assume these short-term loans disproportionately appeal to a demographic who relies on predatory lending.
The biggest problem I had with the article was the line: “If the Holiday Quick Loan program is successful, DMCU may try another round of loans in the spring.”
Hey, that’s cool. I don’t necessarily want CUs to become like payday lenders; I want them to provide payday lending alternatives.
Trey,
That was the problem I had with the “news” and its source too.
So many credit unions ONLY get their information from CUNA. If it’s there – let’s R & D it (rip off and duplicate).
We need to STOP promoting debt and start promoting thrift and your example is brilliant!
After all the thoughtful comments above about the value of thrift and all, I feel like a something of a dork simply saying that the “Do Not Buy Stuff You Cannot Afford” bit is brilliant.
Reminds me of a sure-fire weight-loss best seller that I never got around to publishing. It was also going to be a one-page book. My entire, sure-fire guaranteed weight loss super-secret program was: Eat less. Excercise more.
I coulda been famous!
Bruce,
Perfect.
D.
@Bruce: I’ve lost 37 pounds this year on that exact same super-secret program. :) Which, in its nerd formulation, is also known as The Hacker’s Diet.
Like dieting, promoting thrift is both really easy and really hard. All of the psychological cues in society push towards consumption. Modern marketing, business, etc. are all tied into getting people to spend money on stuff. Ordinary thrift
- not investing, just saving more than you earn -and ordinary diets—eat less, exercise more: there’s nothing to buy or sell in it.I thought I had something to add to that, but now I can’t remember what it was.
Gah, stupid double dashes. None of the strikethrough line should be there.
Denise and Elaine,
Thanks for your comments.
I should let you know that as a result of the now revealed super-secret diet, I now have renewed color in my cheeks, a youthful spring in my step and a song in my heart.
“Don’t Buy Stuff You Can’t Afford” and what if that “stuff” is daycare, heat for the winter, tires for your 10 year old car?
Please be careful who you assume is over spending. You never know who amongst you is in proverty.
I have no problem saying it…
I Hate Check Cashing and Payday Loan Centers.
I really do. They are like a crazy black hole for people who don’t know how to manage their finances or make very little income. The scary thing is that I know people who refer to these places as their bank.
Now to make it worse, there is a franchise that is redesigning their locations look “Bank-Ish”. I saw a commercial on Friday that really caught my attention. I wrote a little about it here. Once again, Trey beats me to the punch :)
Trey, I love the idea of putting part of the loan interest into a savings club for next year. That’s just the sort of thing to help someone break the cycle of debt. CU’s that offer this type of loan really should take a few extra steps to educate the borrowers.
At a CU I used to work at there were always the same people every year who came in to get the “Holiday” loan. Then came the “Vacation” loan which attracted the exact same group of people. Many members could have asked for a personal loan or LOC at a better rate and been able to access it all year long. These are the folks who will grasp at any and every bit of cash they can and who so desperately need some guidance. We(the CU) tried to curb the rush by making it an “either/or but not both” policy for those with more troubled history. I don’t mean to sound critical of my former CU, they did make a notable effort to offer credit counseling to members.
Hopefully DMCU is actually responding to the needs of their community and not just looking for ways to boost their own loan portfolio. What bothers me is that they would say that they’re doing it to help those who are over-extended. I recall my loan officer training years ago when a veteran VP quietly told me that “there are some members who need for you to tell them no. That really is how they know that they’re over-extended. They’re depending on us to tell them the truth.” Or something like that.
Another question: Should we be required to label each loan with something like you find on cigarettes? “Surgeon General’s warning: Smoking this will probably kill you!” “CU Financial Counselor’s Warning: Taking this loan, while advantageous in the short term, will likely push you much closer to that ever-impending bankruptcy you’ve already been thinking about.”
@shari: thank you. That needed to be said. (Several years ago, at a previous job, I had a part-time assistant who had to quit because she was making too much money to get daycare benefits for her 3-year-old, but not enough to actually pay for daycare. Her other part-time job paid more, so she stuck with them. It was a very sad moment for me; she was incredibly talented and hard-working.)
@ bruce I couldn’t agree with you more about the payday lenders; however, they are there because uniformed, misguided, or apathetic people chose to use them. We can only help the people who want to help themselves.
@ dan I agree with you about counseling the members who are obviously having problems. I actually had two loans today that fit the profile you mentioned. We had done consolidations for both 6-9 months ago and now they want to consolidate the same credit cards that we paid off before on top of their current balance with us. My question was did we tell them that if they charged this card back up we would not be able to continue helping them. The blank stare that I received told me that the msr didn’t understand that they were part of the problem as well.
@shari – that’s a very good point. I absolutely believe CUs need to help the folks who are using the payday lenders to get from paycheck to paycheck. I love seeing CUs who are providing these types of products and coupling payday lending with other products that will help improve financial health.
Like Dan said, “Hopefully DMCU is actually responding to the needs of their community and not just looking for ways to boost their own loan portfolio.”
I shared the SNL skit because I find myself thinking about it often. It’s some of the most sound financial advice one can get – no matter the income level or situation.
It’s, as has been mentioned in the comments above, “a miracle diet” for the wallet. I’d like to see credit unions prescribing it – along with offering products that help those who need it.
Sorry if I came off as callous or making light of a terrible situation many folks face. I feel like CUs are in a unique position to help, and most likely that’s what DMCU is trying to do.
I love what NC State Employees Credit Union is doing along this front http://www.ncsecu.org/Loans/SalaryAdvance.html. Maximum loan of $500, 12% APR, must be paid off by the next paycheck, 5% of the loan amount gets put into a “locked” cash account. Withdrawals from this cash account must be approved by an NC SECU employee.
So, this account saves members money (12% APR vs. the ungodly amounts charged by payday advance joints). It “forces” them to put some of the money aside into a savings account. It doesn’t allow the member to overextend past $500.
I think this satisfies both Trey’s call for help and Denise’s desire to promote thrift.
Warrior,
That’s exactly what I’m talking about. So smart. Thanks for showing up the light at the end of the promoting debt tunnel.
need holiday loan for my small family