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StretchPay
A credit union salary
advance alternative |
What is StretchPay?
StretchPay,
the credit union salary advance alternative, is a special
loan program designed to help members who need a
small-dollar loan to carry them over until they receive
their next regularly-scheduled income check. StretchPay is
designed to be an alternative to expensive for-profit payday
lenders that often charge $15 per $100 up to $800 for two to
four weeks. |
StretchPay is a
special line-of-credit loan designed to make it easy and
less expensive for members to obtain affordable short-term
credit. StretchPay is set up with one important difference
to traditional lines-of-credit: a borrower must repay their
entire outstanding balance (plus interest) before subsequent
advances are permitted. Thus, if a borrower takes a $250
advance on their StretchPay line of credit, they must pay
off the entire balance before borrowing again. |
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Why offer StretchPay loans?
StretchPay
is significantly less expensive than a traditional payday
loan. Borrowers pay a $35 annual fee (for a $250 line of
credit) and an interest rate of around 18% APR on their
advances. The annual fee may be taken out of their first
advance during a 12-month period. |
A
borrower who uses StretchPay for 12 advances on a $250 line
of credit during a 12-month period will pay approximately
$77 for 12-months’ access to the loan. A borrower who uses
a traditional payday lender may pay more than $400 for the
same amount of credit. |
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How does it work?
A
credit union offers the StretchPay credit union salary
advance alternative in association with a not-for-profit
organization called Credit Union Outreach Solutions,
Inc. (CUOSI). CUOSI, headquartered in Ohio, is a
non-profit cooperative organization formed to fuel credit
union outreach and community commitment initiatives. Each
time your credit union collects an annual fee from a
StretchPay borrower, you forward the fee to CUOSI. In turn,
CUOSI helps your credit union offset any credit losses
sustained under the program. This way, you are able to offer
members an alternative to expensive |
payday lenders without incurring the credit risk sometimes
associated with small-dollar, minimally-underwritten loans.
StretchPay is offered to your members using minimal
underwriting criteria. Members must be 18 years old, an
established member of your credit union for at least 60
days, and not delinquent on existing loans or negative in
any share account. Members must have verifiable income, not
be in the process of filing for bankruptcy under any chapter
of the bankruptcy codes, and must not have caused a loss to
the credit union. |
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How is it structured?
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Credit
limits/minimum advances of $250 (with an annual fee of
$35) or $500 (with an annual fee of $70);
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30-day repayment
term;
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Advances must be
paid in full prior to new/additional advances;
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No more than 18%
APR (or the state usury rate, whichever is applicable);
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Payroll
deduction is encouraged, but not required;
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Borrowers must
be at least 18 years old and a member of your credit union
for at least 60 days.
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Benefits of StretchPay
For Your
Member:
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StretchPay is
significantly less expensive than for-profit payday
lenders.
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StretchPay helps
build a positive credit history when a borrower repays
their loan on time.
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StretchPay keeps
your members aligned with their credit union, giving you
the chance to offer financial education and counseling –
breaking them free of the payday loan debt treadmill.
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The annual
participation fee may be taken from the first StretchPay
loan advance during a 12-month period.
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For Your Credit Union:
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Allows you to
offer a credit union payday loan alternative at low cost
and without significant financial risk.
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Gives you the
opportunity to work with and educate members regarding
budgeting and other personal financial management skills.
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Provides
interest income at up to 18% APR with a minimum of credit
risk.
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Demonstrates how
credit unions make credit and other financial services
affordable and accessible to the nation’s consumers.
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See
the difference
Stretch Pay is designed with
consumers' needs in mind. On a $500 loan for 30 days (28 days for the commercial
payday lender),
borrowers will save more than $142 with StretchPay. |
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$250 loan |
Interest & Fees |
Loan
Amount |
Annual
Percentage Rate |
Term |
Total
Finance Charges |
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Sample Commercial
Payday Lender |
$15 per
$100 borrowed for each 14-day term |
$250 |
391.07% |
28 days |
$75.00 |
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StretchPay |
18% APR,
plus a $35 per year enrollment fee |
$250 |
18.00% |
30 days |
$3.70 |
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Members save
with a $250 StretchPay loan
(not including once-yearly
enrollment fee of $35) |
$71.30 |
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$500 loan |
Interest & Fees |
Loan
Amount |
Annual
Percentage Rate |
Term |
Total
Finance Charges |
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Sample Commercial
Payday Lender |
$15 fee
per $100 borrowed for each 14-day term |
$500 |
391.07% |
28 days |
$150.00 |
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StretchPay |
18% APR,
plus a $70 per-year enrollment fee |
$500 |
18.00% |
30 days |
$7.40 |
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Members save
with a $500 StretchPay loan
(not including once-yearly
enrollment fee of $70) |
$142.60 |
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© 2007 the
Ohio Credit Union
League
The trade association for Ohio credit unions.
5815 Wall St., Dublin, Ohio 43017 • Phone: (800) 486-2917 • Fax: (614)
336-2895
E-mail
us
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