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Steer Members From Predatory Lenders Back to Cooperatives

By Seth Brickman, CEO, QCash

April 2023

In 2003, an inquisitive teller at Washington State Employees Credit Union (WSECU) asked the CEO why so many non-members of the cooperative were cashing credit union member checks.

After some investigation, WSECU discovered that a high number of members were regularly using predatory lending. To their surprise, they found that the national average of predatory payday lending in the U.S. clocked in at nearly 400% – and remains this high twenty years later in many states. 

The credit union’s leadership discovered that in just over six months, members had borrowed more than $6 million in predatory payday loans, totaling over $900,000 in fees over the course of a year. It turns out that teller’s inquiry changed the financial health of millions by steering them away from such high-risk influences as predatory lending.

There remain plenty of underbanked and underserved members in need of financial inclusion. The Financial Health Network (FHN) found in 2022 that two out of three Americans (66%) are financially unhealthy. And in 2021 FHN found that 40% would struggle with a $400 emergency expense. Perhaps more staggering? According to pymnts.com in January of 2023, the percentage of Americans who are living paycheck-to-paycheck has reached roughly 64%, with a surprising 80% of the consumers within that increase making over $100,000 a year.

The U.S. is also dealing with the challenge of getting younger generations like Gen Y and Gen Z to prioritize financial inclusion and health by steering them towards the nurturing arms of the credit union movement. While one in 10 Americans overall are credit invisible, Gen Y and Gen Z feature an even higher percentage. According to MoneyGeek, 40% of credit invisibles are under age 25 with the largest group of invisibles at 64.5% falling in the 18 to 19 age range. The future health of the credit union movement and the U.S. economy overall depends on focusing our teens and young adults back around to financial literacy and education right now, so they find better financial well-being later.

Predatory Alternatives

Have you asked yourself, “Why would anyone actually use predatory payday lending?” Because it’s easy; you walk in to smiling faces, welcoming hot coffee, multi-lingual representatives, and you get your money relatively quickly. But here’s the real difference: there’s no collateral required, the application is simple and straightforward, and there’s no credit required.

The prevailing belief is that since you don’t have the necessary traditional qualifying credit at your local credit union, predatory lending appears to be your only option. Convenience draws users. But many fall into a debt trap – high interest and short terms can result in needing a second or even third loan to pay off the first.

Small-Dollar Loans Stabilize Member Financial Health

Credit unions can achieve the same results, but even better. Small-dollar loans provide essential financial services to many individuals in underserved communities across the country. By providing small-dollar loans to those consumers who cannot otherwise access traditional forms of credit, small-dollar loans from local credit unions help communities and small businesses thrive and allow money to be reinvested in local businesses and neighborhoods where it is needed most. 

According to the NeighborWorks Housing and Financial Capability Survey, adults in the U.S. have significant interest in guidance concerning saving, budgeting and building credit. For paying down debt, 48% of those surveyed expressed an interest in financial guidance. That's where the credit union movement and its commitment to small-dollar loans comes in. Once a member’s financial need has been met, they are open to additional services the credit union provides – like financial coaching and more traditional loans. One member used several QCash small-dollar loans over a year and a half to build good credit. The credit union was thrilled to share that his member qualified for a first-time home loan and is now a first-generation homeowner in his family.

Automated small-dollar loans are key to providing members access to click a link on your cooperative’s mobile device or website saying “I need a loan” to actual funds in their waiting accounts within 60 seconds. Money in a minute. This swift process works without the use of a credit score but still employs safe and responsible lending.

A relevant case study took place during Florida’s Hurricane Ian in 2022. Within minutes, a credit union went live with an emergency loan to help residents get the ultra-fast funds they needed to purchase gas to evacuate, getting out of town to safety. These funds also helped secure temporary housing and groceries while families were displaced. Creating and setting up a loan used to take days, now it takes minutes. Whether it’s a tornado, wildfire, hurricane or even a government shutdown or major employer layoff, your credit union can truly be that financial first responder who helps your nervous and stressed-out members obtain the immediate financial help they need, when they need it.

The Mission Continues

I want to make sure whatever I’m doing is through the lens of helping vulnerable communities. We’re not just innovating to be cool; we’re innovating for financial inclusion.

Rodney Hood

NCUA Board member and former Chairman

We couldn’t have said it better. Credit union members and their families needed a safer place to turn for financial help. Small-dollar loans are the first step to improving their financial well-being.

Join the mission to fulfill the idea that a teller prompted all those years ago: bring members back to the safety of the credit union and build the financial health they dream of.


About QCash

QCash Financial offers relationship-based small-dollar loans. The CUSO’s lending platform enables credit unions to help their members responsibly when they face financial challenges from unexpected life events. From application to account funding, the process is complete in under 60 seconds, no credit check required, and completely digital, needing no effort from staff. When life happens, be there for your members anytime, anywhere and from any device.

Ready to level-up your members’ experience? Consider Life Event, Specialty, and Financial First Responder Loan programs, all using QCash’s patented relational underwriting.