NEW YORK—The National Federation of Community Development Credit Unions testified before the Assembly Subcommittee on Banking in Underserved Communities in New York City on the Federation's “Borrow and Save” program. The hearing examined the establishment of a Borrow and Save pilot program in New York State.
Borrow and Save, aimed at combatting predatory lending, is a small-dollar loan coupled with a savings component, providing access to affordable credit while building assets to self-fund future bills or emergencies.
Borrow and Save is an amortizing small-dollar loan with a required savings component, the Federation explained in a release. Consumers borrow between $300 and $3,000, and 10% to 50% of the loan balance is placed in a restricted savings account for the term of the loan. Loans range from three to 12 months and credit unions price the loans affordably, with rates ranging from 15% to 28%.
When the loan is repaid, the borrower has savings, which helps build credit. Income verification is required for the loan to ensure borrowers can repay, but Borrow and Save has no minimum credit score.
The Federation first tested Borrow and Save in 2011 with three credit unions. Over the course of the pilot 406, loans were made for $584,000 and borrowers accumulated $256,000 in savings. Delinquencies were 4%.
Based on the success of the initial testing, Borrow and Save was chosen selected to participate in the Filene Research Institute's Accessible Financial Services Incubator. Twelve credit unions from New York to California are offering Borrow and Save through the Incubator pilot.
Since May, when the pilot started, participating credit unions have made 1,000 loans totaling nearly $1.2 million, and borrowers have collectively amassed $461,000 in savings.
Testifying before the subcommittee, Ann Solomon, strategic initiatives manager at the Federation, said, "We see from the initial reports that Borrow and Save is successfully providing access to credit for low-income borrowers with damaged credit or no credit history. Borrowers in the Incubator have an average income of roughly $30,000 and typical credit scores are below 600. For many of the participating credit unions, Borrow and Save has been a great way to provide access to credit to individuals who are not eligible for more traditional loans. Borrow and Save can also serve as a stepping-stone for individuals to improve their credit and, over time, to access conventional loans at lower interest rates."
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