Eleven Ohio credit unions have partnered to offer a more affordable alternative to payday loans, and more credit unions throughout the country are expected to join.  The Credit Union Outreach Solutions Inc., a credit union service organization, will guarantee any loss from a new short-term loan program by sharing the risk among its members.  Participating credit unions each contributed up to $15,000 to form the CUSO, whose annual fees are pooled into a guarantee fund to cover any losses from defaults.

The short-term loan program, called StretchPay, offers credit union members 30-day loans of $250 or $500 for small annual fees of $35 and $70 respectively.  Members also pay an interest rate of 18 percent.  A consumer who gets 12 advances of $250 in a year incurs a total cost of about $78 compared to the $360 the consumer would pay to get 12 similar loans from a payday lender, according to Bill Burke, the president and chief executive of the Day Air Credit Union in Kettering, Ohio and board chairman of the newly formed Credit Union Outreach Solutions.

To qualify for such a loan members must be in good standing and have six months of verifiable income (employment with the same employer for six months or fixed income for at least six months, i.e. Social Security, Retirement, etc.).

The StretchPay program was modeled after a similar program started in 2003 at the $1 billion Wright-Patt CU in Fairborn, Ohio.  With the help of Day-Air CU, the concept attracted the attention of the Ohio Credit Union League and the Filene Research Institute’s REAL Solutions project, which helped develop the program.

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