“CashPlease”: a small bank launches an alternative to payday loans

This week, Wells Fargo joined the list of big banks introducing short-term credit products – and Boston’s smaller OneUnited Bank unveiled its own version, designed as an alternative to payday loans.

OneUnited’s loan, called CashPlease, is designed to help customers of the $ 635 million black-owned bank manage their cash flow without the hurdles and higher costs that other lenders might impose. Instead of performing credit checks, it examines the activity of checking applicants’ accounts and other aspects of their relationship with the bank. Funds arrive within four hours of loan approval.

OneUnited’s rollout of CashPlease comes after the introduction of similar low-value loans by several large banks. In October 2020, for example, Bank of America launched Balance Assist, which offers loans of up to $ 500 for a fixed fee of $ 5 and a repayment period of three monthly payments.

Wells Fargo expects offer a loan by the end of 2022. It will provide amounts up to $ 500 for a lump sum amount yet to be determined, and will be repayable in three equal monthly installments.

In June, Huntington Bancshares, a $ 174 billion asset in Columbus, Ohio, launched its Standby Cash Program, a digital-only line of credit of $ 100 to $ 1,000. If the borrowers agree to repay it in three monthly installments drawn automatically from their accounts, the Huntington loan is free. Otherwise, it carries an annual percentage rate of 12%.

OneUnited doesn’t have the deep pockets of a Wells, BofA or Huntington, but it has recognized a need for low-cost, short-term credit in its communities, according to Teri Williams, president and chief operating officer of OneUnited.

“The reason the payday loan industry is so prevalent is that there is such a need for small dollar loans. From a customer perspective, we want to bring a measure of responsible and responsive lending, where you are not trapped in debt, ”said Teri Williams, President and COO of OneUnited Bank in Boston.

The value of the CashPlease loan ranges from $ 200 to $ 1,000. It carries an APR of 47% – significantly less than the cost of a payday loan – and is also payable in three monthly installments deducted from borrowers’ checking accounts.

“We will not lose money [but] we haven’t implemented this for revenue, ”Williams said. “We’ve tried to identify ways that… won’t cost us money but will allow our customers to avoid practices that put them in the red in a way they can’t come back. “

Another community bank, Southern Bancorp, with $ 2 billion in assets in Arkadelphia, Arkansas, said it plans to develop an app to provide its customers with a short-term loan, CEO Darrin said on Tuesday. Williams.

Southern, which is certified as a Community Development Financial Institution, offers its employees an emergency loan of up to $ 1,000, paid into their checking accounts almost immediately and payable over 12 months. The goal now is to develop something similar for its customers.

“What we hope we can do is use customer data to establish underwriting criteria and determine how we might extend small credit to people over time, which will enable us to provide this payday loan alternative. to people, ”Williams said. .

In underprivileged communities, where residents’ banking options are limited, access to affordable, small credit is critically important, Williams added. Often, payday lenders are the only choice. Indeed, a to study published in the Emory Law Journal in April found that payday lender advertising disproportionately targeted African American and Latino clients.

“The reason the payday loan industry is so prevalent is that there is such a need for small dollar loans,” Williams said. “From a customer perspective, we want to bring a measure of responsible and responsive lending, where you are not trapped in debt. “

Like OneUnited, Huntington does not expect to generate significant revenue from Standby Cash. Chairman and CEO Steven Steinour said in a recent interview that the company may actually suffer a small loss in the short term. Over time, however, this should generate brand loyalty, according to Steinour, who said the Standby Cash ranking was one of the most successful product launches in the bank’s history.

“It’s not something you say, ‘OK, I’m going to get [a return on investment] to [this] within a year or two, ”Steinour said of Standby Cash. “Over time, it will be a brand separator. … This will set our product line apart. If you look at who has the best pound-for-pound checking account and you put that product in, nobody else has it.

While Huntington has not released statistics on Standby Cash, “product registration and use continues to exceed our initial expectations,” a company spokesperson said Wednesday.

OneUnited expects to see a similar response for its CashPlease product, based on early indications from its customers. OneUnited launched CashPlease on the bank’s mobile app last month, weeks before Tuesday’s official release. Even without any further marketing, a number of customers have taken out loans, Williams said, adding that she expects more banks to create competing low-dollar loan products over the next several years.

“We see our experience as being – I hate to use that term – a bit like a canary in a coal mine,” Williams said. “We believe that as an industry banks should be at the forefront in this area. There are so many… unhealthy solutions.

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