GRAND RAPIDS, Mich.—Xtend is working with credit unions to offer members a 0% loan designed to keep borrowers away from payday lenders.
In partnership with ClearChoice Holdings, Xtend’s program allows credit unions that are part of the cuasterisk.com network to offer the no-interest loan to purchase household items via an online shopping solution.
“A lot of members live paycheck to paycheck and have little saved for emergency expenses,” said Scott Collins, president of Xtend. “You have seen the studies that show this problem exists in the U.S. Forty percent of credit union members might not have any other means except a predatory lender to cover the cost of a washer, dryer, or stove going bad. So they turn to a payday lender and on day 91 get surprised with a huge interest payment and they are caught in a cycle of debt. We don’t want that to happen.”
'Reverse Layaway'
Collins, who noted that the products on the online shopping network branded to the CU are fairly priced, described the loan as a “reverse layaway program.”
“With most layaway programs you put money down on something and when you pay it off you get the product,” said Collins, who thinks the new loan will also have members avoiding rent-to-own companies. “But how does that help when you need a new refrigerator today? You go to the website, order the product, and it’s delivered to your home and even set up, if you like.”
As soon as members order a product from the site that is linked to from the credit union’s homepage, a 0% loan is generated, explained Collins. Members are first pre-approved for a line of credit, most ranging from $500-$3,000. Collins explained that the CU sends Xtend a list of members in good standing, then ClearChoice simply checks to make sure the member has enough money coming in through ACH deposits to cover the loan payments.
“We don’t do any credit bureau checks,” said Collins. “ClearChoice runs the ACH deposit information through some macros and scores that member for a line of credit. Members can choose repayment terms from six to 18 months and payments are taken out biweekly via ACH.”
Credit unions make money from a marketing fee that generally ranges from 9%-10% of the loan amount.
“Of course, the credit union services and manages the loan, just like any other loan,” Collins explained.
A Partnership
Members who are qualified for the program learn about the loan from CU marketing efforts that often begin with an email, and then website ads and in-branch signage. Collins said Xtend partners with the credit union to design and deliver the promotional programs.
“The shopping website, which is a lot like Amazon, can also be used by non-members and members who simply want to buy a product and pay for it,” said Collins.
The program is live at four CUs, a number are also in the final stages of testing, and about a dozen CUs are in the pipeline, Collins said.
“We believe this is a great answer for members in those difficult situations,” said Collins. “Moreover, we believe it reflects the core values of our industry and should help credit unions attract unbanked consumers to their cooperatives.”