Municipal Credit Union (MCU) will provide city, state, federal employees and their families a Step Line Of Credit loan product as an alternative to payday loans. The goal of this initiative is to decrease member dependency on payday loans and other predatory lending practices. Members will be eligible despite negative credit history or below average credit scores; however they must be in good standing with MCU and not delinquent on existing MCU loans. This Step Line of Credit will launch Summer of 2014 as a pilot program to the credit union's 360,000 plus membership in New York City with a first year cap of million. The program, under close monitoring, can expand upward to a cap of million. Based on the data, if member loan delinquency remains unremarkable, then MCU will expand the pilot initiative by increasing the availability of funds by an additional million dollars in the second year. However, if a 3 percent or greater delinquency ratio occurs, the million cap will remain in place and member qualification requirements will be reviewed by management and the board of directors.
Members will have three Line of Credit options: , , and . The APR for all three options will be fixed at 15.9%, and will not have late payment fees, and no prepayment penalties. Repayments will be in six bi-weekly installments. Members must have a minimum gross monthly income of and may choose to repay via payroll deduction, ACH, or a traditional coupon book ( only). In addition, MCU understands the importance of financial education to end the payday lending cycle. To that end, MCU will also offer complimentary financial education through its in-house credit counseling program or through a third party, BALANCE financial fitness partner.
The Step Line of Credit loan product and program will commence in Summer of 2014 (late June/July). The loan product will not be advertised, but will be available as an emergency loan option benefit.
MCU's Business Development team will present this initiative at the member-employer group level as a benefit to members of modest means who are struggling with existing payday loans or just trying to make ends meet. The team will actively visit Select Employer Groups (SEGs) on site to introduce the product to members. SEGs are typically agencies such as: NYPD, FDNY, Corrections Dept., NYC Health & Hospitals, NYC Dept. of Education, etc. to name a few. The HR administrators of the SEGs will also publish to their respective employees this available benefit. To apply, members will need to call a Hotline where representatives will walk them through the loan process. At this triage stage, credit counseling and/or financial education will be offered in conjunction with the loan. Actual data will be collected monthly regarding program enrollment, delinquency, and member financial education.
The loan product will in its first year will have a million cap. MCU estimates that the average loan will amount to , and therefore MCU looks to process approximately 2,000 members throughout the pilot phase of the commitment.
Municipal Credit Union (MCU) is a billion asset sized financial institution state-chartered in 1916. The oldest and one of the largest credit unions in New York State, MCU's field of membership includes, but is not limited to: city, state, federal employees, medical profession employees, employees of agencies who are funded by the City or State of New York, family members, and persons who live in the same household. Serving over 360,000 members of diverse backgrounds, MCU's core mission is to encourage savings and provide affordable, quality loan products.
More than twelve million Americans are trapped in the endless cycle of payday lending, a type of predatory lending. A typical payday loan can carry interest rates as high as 400 percent. Credit union members are not exempt from the payday lending debt trap. Credit union membership is inextricably tied to the financial institution's wellbeing. As members become financially fit via access to affordable, quality loan products, earnings are passed back down to members through dividends and lower rates. Rather than being engulfed in a cycle of endless debt, members will have the opportunity to engage in safe, sound borrowing practices with full disclosure.
Financial education is an important aspect to breaking the cycle of payday lending dependency. Potential partner(s) could be credit counselors with a financial literacy program for adults and minors. MCU seeks a partner that could offer a sound, dynamic credit counseling or financial literacy program to supplement our existing resources.
MCU offers potential service delivery to a growing membership of 360,000 plus members and their families.