Monday October 2, 2006

Payday Lenders Receive Notice

A UD professor and two Dayton, Ohio, credit unions created StretchPay, a credit union advance alternative that undercuts what payday lenders charge by nearly 80 percent. Now, they've extended StretchPay to 11 other Ohio credit unions.

Brother Victor Forlani, S.M., a University of Dayton management lecturer, wants to put some payday lenders on notice. "We're going to be out there fighting you. Charging an excessive interest rate is wrong."

Forlani and two Dayton, Ohio, credit unions created StretchPay, a credit union advance alternative that undercuts what payday lenders charge by nearly 80 percent. Now, they've extended StretchPay to 11 other Ohio credit unions.

The Consumer Federation of America says payday lenders charge an average of 195 percent to 1,092 percent interest on a $100, 14-day loan. Borrowing $250 a month for a year through StretchPay costs $75 compared to $450 at a payday lender, according to Bill Burke, president and CEO of DayAir Credit Union.

Burke sees StretchPay catching on elsewhere. He said about a dozen other credit unions in the region also are interested in StretchPay. Similar, unrelated programs are springing up in Florida and Oregon, according to CreditUnions.com.

"The more you have people who are financially stable, the better off we all are," Forlani said.

Under StretchPay, credit unions offer members loans with a $250 initial credit limit, which can be raised to $500 with a strong repayment history. There is a $35 annual fee to participate. The repayment term is 30 days. All loans must be paid in full before a borrower can receive another loan.

"A lot of people just can't believe there's an alternative that's so much less expensive than the payday lenders," Burke said. "This program really is targeted at people who have a good repayment history but are living paycheck to paycheck, which I think is a fairly large number of people."

For the 11 Ohio credit unions offering StretchPay, profitability is not driving this venture, because all profits cover administrative costs. A nonprofit organization - Credit Union Outreach Solutions - will administer a fund on behalf of the credit unions to cover any losses from defaults.

"I'm hopeful the program can grow and achieve a scale such that we're making a difference in the marketplace," Burke said. "The credit unions participating in the StretchPay program are emphasizing financial literacy counseling in an attempt to move members from the cycle of living payday to payday. We're not only saving members money on these types of loans but also attempting to provide real financial education, so members can develop a savings plan."

In 2003, Forlani worked with Dean Lovelace in UD's Fitz Center for Leadership in Community on the problems of predatory lending. Forlani met with Dayton-area credit union executives to see what might be done to address what he and Lovelace saw as the growing problem of people falling into debt because of, in part, payday loans. UD students researched possible solutions and, together with the credit unions, came up with a pilot program - Salary Advance Loan Program - launched by both Day Air Credit Union and Wright-Patt Credit Union.

Day Air Credit Union has made more than 4,000 StretchPay loan advances worth approximately $1.25 million to more than 400 members since then, according to Burke.

This fall, UD topped all Catholic universities and placed third nationally for sparking revitalization in its urban region, according to "Savior of Our Cities," a list compiled by Evan Dobelle, president and CEO of the New England Board of Higher Education.

For media interviews, contact Brother Victor Forlani, S.M., at 937-469-3032 or Bill Burke at 937-643-2160.