Borrow and Save Building Assets with a Better Loan A Federation Pilot

1. Borrow and SaveBuilding Assets with a Better LoanA Federation Pilot

2. The Federation • For over 40 Years, the Federation has invested in credit unions that serve loan and moderate income communities • We have designed products and programs to help credit unions serve underserved communities • We created an investment product, PRIDE, that shares the risk CUs offering alternatives to high cost predatory loans • We placed reserves at CUs to support alternative to payday products • In 2011 we launched Borrow and Save • Our 250 credit union members with over $15 billion in assets that serve 2.2 Million members are our weapon in the fight to offer fair and affordable financial products

3. What is Needed in the Marketplace A Loan Product That Provides Cost Savings And Builds Savings 2013 Annual Conference : Financial Inclusion Through Cooperative Finance

4. Credit Union Alternatives in the Marketplace Many effective alternative to payday products save borrowers $$millions by offering affordable small dollar loans State Employees’ Salary Advance Program with rates from 5% to 11% and with monthly volume of $35-40 Million saves borrowers upwards of $3M /Month Better Choice-A Pennsylvania credit union-wide alternative to payday product 64,000 totaling more than $32M and saving consumers over $23M in fees and interest

5. But…When we Look at Why People Borrow Small and Short-Term Living with Economic Insecurity

6. Why People Borrow Small Amounts &Short-term

7. What is Also Needed in the Marketplace • A product that allows for the short term need while addressing longer-term financial stability • a fairly priced loan product, that included savings and financial counseling was the place to start

8. Borrow and SaveProduct Design and 18 Month Pilot Launch • Required Common Underwriting Guidelines • A small-dollar loan (Loans not to exceed $1,000) • Mandatory savings requirement with percentage of savings to be determined by the CDCU • Loan term between 6 and 36 months • No more than 3 rollovers per year. • Not more than one loan out at a time • Adherence to NCUA guidelines on maximum interest rates and fees • Tracking of loans including repayment history, the amount of savings and uses

9. Product Design and Pilot Launch Four credit unions of varying asset size were selected as part of the pilot

11. Results

12. Savings Impact

13. Sustainable for the CU? Additional Costs Financial education High-touch underwriting Other technical assistance Marketing Data Collection

14. Key Findings • Borrow and Save loans perform well for the credit union • There is demand for Borrow and Save with multiple purposes and uses among borrowers • Small dollar loan borrowers build savings and credit and reduce the need for rollovers or repeat loans • Credit scores and membership tenure are not predictive of repayment • The Borrow and Save loan is a sustainable product for credit unions

15. Best Practices

16. Key Marketing Concepts 2013 Annual Conference : Financial Inclusion Through Cooperative Finance

18. Expanding the Program

19. For Additional Information Melanie Stern mstern@cdcu.coop 212-809-1850 2013 Annual Conference : Financial Inclusion Through Cooperative Finance