It’s been said over the decades that credit unions (CUs), like many people, tend to operate more conservatively by nature; their tendency to focus on the losses that could occur rather than the opportunities that may bring about further financial successes for their organization.
When it comes to small dollar lending (SDL) programs in this uncertain legislative era for our nation’s CUs and government regulatory organizations, such biases towards revenue-generating innovations and proactive initiatives still leave thousands of borrowers off credit union radars and into the pockets of risky predatory lenders ready to strike with their triple-digit APRs.
With 78 percent of Americans living paycheck-to-paycheck (Forbes) and 12 million utilizing payday loans annually (Pew Research), short term SDLs serve a fundamental need for America’s most financially vulnerable. Average borrowers earn about $30,000 a year (Pew Trusts), and unfortunately most consumers utilize those costly triple-digit payday lending stores to cover ordinary living expenses and unexpected emergencies. They do business with such stores because they’re unaware of the same services available at CUs, intimidated by the prospects of being involved with a financial institution, or they simply don’t know any better – first seen, first frequented.
So what’s holding so many CUs back from promoting SDL programs and taking advantage of the wide open opportunity to benefit their bottom line (revenue generation) and live up to the cooperative mission of “people helping people”?
Loss aversion is a powerful influence; the common behavioral economic concept that says people and organizations generally feel a stronger impulse to avoid losses than the prospect of gains. Many CUs are hesitant to implement an SDL program for a number of reasons. The fact remains many in CU leadership are stuck in the mindset of loss aversion, even with the implementation of the PAL II lending rules by the NCUA in September 2019. They focus on all they could lose as opposed to everything their CU may gain; such as providing affordable credit to members who need it most while guiding them back on to the path to financial wellness.
Let’s turn that mindset of loss aversion around. For those 12 million at-risk consumers paying triple-digit APRs at payday loan outlets, imagine if they could log into their CU’s mobile app, apply for an affordable small dollar loan at their fingertips, and have the cash they need in their CU savings or credit account within a few minutes? That service provides several benefits: it offers a necessary and in-demand service, member retention and loyalty, good word-of-mouth publicity for the CU, and positive revenue generation — all while personally guiding the member back on the path to financial stability and overall financial health.
When it’s all said and done, responsible CU leadership needs to weigh the checks and balances (no pun intended) for all the products and services they offer while representing the mission and interests of the CU. One of the original and fundamental assets of a CU has always been offering short term credit to individuals and families that need it. Loss aversion — the fear of what the CU could lose rather than gain — goes against that mission. A small dollar loan offering is a core product members need.
QCash Financial’s white label, mobile financial wellness and lending app is the innovative and mission-focused solution your CU needs in reaching the financially unstable in your membership and communities. For more information on our small dollar lending SaaS product, click here to request a demo.