Because they’re often wrongly lumped in with unscrupulous, predatory payday loans, other short-term small dollar loans suffer from something of an image problem. Credit unions may wonder whether offering such products could hurt their hard-earned reputation. After all, a business’s brand is its identity; a damagedreputation can be an obstacle in the path toward building trust, a crucial aspect of the relationship between a credit union and its members. Throughout the history of credit unions in this country, that relationship has been a special one. Unlike for-profit banks, credit unions are built around the financial best interests of their members. As QCash Financial CEO Ben Morales rightly explains, that focus remains credit unions’ strongest asset for managing their brand.
Why Small Dollar Loans Have A Bad Rap
By now, most in the finance industry are familiar with predatory payday lenders. Their ubiquitous presence in low- to moderate-income neighborhoods, interest rates of 391% or higher and flat-out unscrupulous behavior are infamous. Other small dollar lenders are savvy enough to tout their own products by comparing them favorably to payday loans. But those small dollar loans, such as installment or pawn shop loans, are often just as predatory. Responsible short-term small dollar lending products like payday alternative loans (PAL) from credit unions suffer from guilt by association, grouped together in the same category as those predatory loans borrowers should avoid.
At a time when Americans find themselves more likely to face sudden financial emergencies than ever before, regulatory agencies have actually rolled back oversight. In spite of increasing job losses and medical catastrophes resulting from a global pandemic recession, predatory payday lenders have been empowered, just when our most vulnerable neighbors need protection the most.
As a result, Morales says, CEOs of many credit unions wonder, “How do they overcome the brand implications of potentially being perceived as a predatory lender? It’s a great question, and our brand is what we have and what makes us who we are for our members in the community, and so something we should always care about.”
Credit Union Small Dollar Loans: People Helping People
Morales goes on, however, to point out that the answer lies in the question. Credit unions have a long, proud history of putting their members’ needs ahead of private shareholder profit, and products like PALs spring from that history.
“What I would say is, small dollar lending – short-term credit – is about meeting members’ needs when they need it most,” he says. “They’re not able to make ends meet, or there’s more month than paycheck left.”
2020 has definitely been that kind of year for many of us, a time when our neighbors need a helping hand the most, and Morales says that’s the point to emphasize.
“When you fully believe that you’re trying to serve a member need,” he continues, “the brand will come out in that decision. Your intent is to help, not to prey upon, and so the brand is something that will be built with small dollar loans and short-term credit. That’s one of the aspects we tell ourCEOs: Think about our mission of people helping people; providing small dollar loans is just one way we’re doing that.”
Small Dollar Lending: Help When It’s Needed
Fortunately, concern for the financial health of the entire community isn’t unique to credit unions. Well-known leaders on Wall Street are recognizing the importance of financial help, as are some of America’s largest banks – two groups not known for their philanthropic concern for the community at large. In addition, governmental regulators have relaxed regulations on safer alternatives to payday loans, giving Americans more options in these difficult times. Even some newer payday loan platforms are responding to the crisis, working with employers to offer those in need short-term, low- or no-interest small dollar loans as an alternative to predatory lending.
It’s clear that credit unions still lead the way, however, in no small part because it’s an organic, defining part of who credit unions are; member-run institutions are deeply invested in serving the needs of their members. It may sound like circular reasoning, but when we all do better, we all do better; it’s an integral part of the American credit union story, and one that needs to be told.
The concern some credit union leaders have is understandable. Payday lenders have preyed so insatiably on society’s most vulnerable for so long, that any effort to provide products and services that truly help seem disingenuous. By staying true to their identity and mission statements, though, and letting their marketing reflect that identity, credit unions have nothing to fear from offering responsible short-term small dollar lending products designed to help members who need them, when they need them.
That’s where fintech solutions like QCash Financial’s small dollar lending platforms come in. Sixty-second decision-making based on relationships, as enabled by our platforms, ensures credit union member access to help in a meaningful, responsible and responsive way. Credit unions have a relationship with their members that’s based on trust; short-term small dollar loans can enhance – not hurt – the brand you’ve worked so hard to build, and QCash Financial is eager to help.
Our website regularly features blog articles about the many crucial financial issues facing our community as we enter 2021 and beyond. For more information on QCash Financial’s small dollar lending or financial wellness services, please contact us.