Tuesday, February 13, 2024

SECU: Consider This - Chapter 13: Esse Quam Videri - Payday Lending

 http://www.buckleshop.com/images/4571.jpg ... different by design.

Esse Quam Videri - "To be, rather than to seem." 

Where are we?  We know our members aren't convinced the credit union is something quite different from a bank - a different purpose, under different principles, with a different game plan. 

We know what members want from the credit union: convenience, consistency, service quality, lowest possible price. And, we know that telling members that we are different is not going to work - the "We are SECU" ads were a silly set back, "rebranding" appears to be little more than a box of different colored crayons, and the "bright and shiny people" on the website look like everybody else's "bright and shinies".  Much waste, without taste, ain't working!

SECU needs to prove it is different. Give up the "selfie-centered We" and focus on "They" - the members. Shut up and show them! That's what the next few days of Esse Quam Videri will be about. Examples of how SECU tried to create unicorn services for the members - with "They" not "We" - in mind. 

First up Payday Lending, which took off as a new financial segment a couple of years back.  Millions of folks started borrowing up to $500 as a short term loan to help make it to the end of the month. Interest rate? - somewhere between 300% and 800%! Now, before you get too snooty and judgemental, stop and go back and read SECU's "origin story" [here Chapter 5]. Isn't a loan until payday how SECU got started?

Short story, long; SECU "mimicked" the payday loan product, which we could see tens of thousands of the members were using each month. The SECU "Salary Advance Loan" (SALO) was a $500 max loan until payday, minimal underwriting (not bankrupt, on direct deposit, "be able to fog a mirror"), with an interest rate of 12%. Could SECU members see the difference between 12% and 300%? You betcha! SECU became the largest "payday lender" in North Carolina! SECU members saved millions of dollars in punitive interest rate costs by avoiding the payday lenders.

But there was a problem (definitely no proud SECU selfie for being the largest payday lender in N.C.!), because payday lending is a "financial trap" for members whether at 12% or 300%. Many members get caught up in the cycle - when payday rolls around, they don't have the funds to repay without renewing the loan again, and again, and again.  So, got 'em out of the high rate, now how to get them out of the financial trap?

SECU added the "mandatory" savings component. When you borrowed, you received $475 back and $25 went into a pledged savings account (yes members' were fine with that!). You can do the math; after @24 months the member had over $500 in the savings account to pay off the loan, break the cycle, and escape the pay day lending trap.

Over 100,000++ SECU members used the SALO program monthly. It was a logistical nightmare for the branches to handle at first, but got it figured out and automated over time. SECU members recognized "the difference", because it was real, their credit union was different (not "seemed"). The press picked up the story (the media told the SECU story, not "We"); and SECU loan department folks even got invited to an FDIC national conference to explain to bankers how to implement a SALO product - pretty sure none did!

Really want to know the truth about the power of unicorns? First, for you "Gekko financial types" [see Chapter 7 - Greed], the salary advance loan was the "most profitable loan" SECU made (and became less and less risky as the pledged savings account grew - get it?). 

But, here's the best part. You know payday loan/SALO borrowers, for the most part, had no savings, had no "rainy day" fund. When "something came up" in their lives (as it always does!), they had no fall back, no "rich uncle" to call!. A payday loan was often not the best option - it was the only option.  

The most wondrous difference about the SECU Salary Advance Loan? After 24 months, when encouraged to pay off the loan from the pledged savings account; many members refused! Members said:  "No, just leave it be, I'll work out the loan. I have never had any savings, never thought I could. I'm really proud to have it, I feel different, I am more in control of my life. "

Small victory? Maybe so. Guess it depends on how you view your purpose in life, view other people, and how you view the purpose of your credit union. "To be, rather than to seem"?

... And just for the record, the balances in those SECU SALO savings accounts at the end of December, 2023? ... $52,920,079.95!  Esse Quam!