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The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan product is patent nonsense! PowerPoint PPT Presentation


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The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan product is patent nonsense!. Michael A. Stegman Presented at the Affordable, Responsible Short-Term Credit Conference Sponsored by Federal Deposit Insurance Corp.

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The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan product is patent nonsense!

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The argument that mainstream banks and thrifts cannot create an affordable & profitable alternative payday loan product is patent nonsense!

Michael A. Stegman

Presented at the

Affordable, Responsible Short-Term Credit Conference

Sponsored by

Federal Deposit Insurance Corp.

Washington, DC September 29, 2005


Why NCSECU experience is important to payday loan debate

  • Founded in 1937 with 17 members and $437 in assets, as of 2005, NCSECU has grown to 1.2 million members with more than $12 billion in assets.

  • For all intents and purposes, SECU is akin to a big bank or thrift;

  • If SECU can successfully market a more benign, affordable, and profitable payday loan product, all banks and thrifts can, if only they wanted to!


The Supply Side of SALOs


Comparing SALOswith other credit products

  • 52,000 SALOs vs:

    • 50,843 home equity lines of credit

    • 66,730 1st mortgage loans

    • 113,200 active credit card accounts

    • 151,600 open end personal loans


Argument that conventional financial institutions cannot create a profitable payday loan alternative is patent nonsense!

  • North Carolina State Employees Credit Union (SECU) created the Salary Advance Loan (SALO) in 2001

  • Since inception:

    • more than 52,000 customers

    • More than 1 million advances to date

    • $400 million total volume

    • 11.75%/12% APR (1/40th of typical payday loan APR)

    • $2.5 million in earned interest since inception

      • Net loss of $1 million in SALO principal

      • Net income of $1 million since inception

    • Average monthly volume is $12-$13 million


Basic economics of SALO program


Benchmarking SALOs

Characteristics of SALOs

  • $500 maximum advance

  • $380 -- average advance

  • 28 days – average term

  • 11.75%/12% -- APR

  • 5% -- Amount of SALO must be deposited into special SALO savings account (instituted in March 2003)

    • 6 months – duration of suspension of SALO privileges for withdrawing money from SALO savings account

  • 1.40% -- # advances 60 days delinquent

  • 0.27% -- 2001-2004 annualized charge-offs as percent of total $ loaned

  • 16.5% -- recoveries since program inception as percent of total charge-offs


The Demand Side of SALOs


Who are SALO Customers?

  • Gross monthly direct deposit wage/salary of SALO customer is $2,125/month, or $25,500/year.

  • 79% of SALO customers have credit scores between 400-584.

  • Median age is around 38

  • 4% -- SALO customers that have a SECU Credit

  • $307 -- average combined SECU share and money market account balances

  • 65% -- SALO customers take out monthly advances


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