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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!

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 l.jpg
Why NCSECU experience is important to payday loan debate an affordable & profitable alternative payday loan product is patent nonsense!

  • 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 l.jpg

The Supply Side of SALOs an affordable & profitable alternative payday loan product is patent nonsense!


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Comparing SALOs an affordable & profitable alternative payday loan product is patent nonsense!with 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


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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


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Basic economics of SALO program create a profitable payday loan alternative is patent nonsense!


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Benchmarking SALOs create a profitable payday loan alternative is patent nonsense!

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


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The Demand Side of SALOs create a profitable payday loan alternative is patent nonsense!


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Who are SALO Customers? create a profitable payday loan alternative is patent nonsense!

  • 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