“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 the much smaller OneUnited Bank in Boston unveiled its own version, designed as an alternative to payday loans.
OneUnited’s loan, called CashPlease, is designed to help customers of the black-owned bank with $635 million in assets manage their cash without the hurdles and higher costs some other lenders might impose. Instead of conducting credit checks, it reviews applicants’ checking account activity and other aspects of their relationship with the bank. Funds arrive within four hours of loan approval.
The rollout of CashPlease by OneUnited comes after the introduction of similar low-value loans by several major banks. In October 2020, for example, Bank of America launched Balance Assist, which offers loans of up to $500 for a fixed amount of $5 and a repayment period of three monthly installments.
Wells Fargo expects offer your loan by the end of 2022. It will provide amounts of up to $500 for a lump sum yet to be determined and will be repayable in monthly installments.
In June, the $174 billion asset of Huntington Bancshares in Columbus, Ohio rolled out its Reserve fund program, a digital-only line of credit from $100 to $1,000. If 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 recognized a need for low-cost, short-term credit in its communities, according to Teri Williams, president and chief operating officer of OneUnited.
The CashPlease loan value ranges from $200 to $1,000. It carries an APR of 47% – significantly lower than the cost of a payday loan – and is also payable in three monthly installments deducted from borrowers’ checking accounts.
“We won’t lose money [but] we haven’t implemented that for revenue,” Williams said. “We’ve been trying to identify ways that… won’t cost us money but will allow our clients to avoid practices that put them in the red in a way they can’t get back.”
Another community bank, Southern Bancorp in Arkadelphia, Arkansas, with $2 billion in assets, said it plans to develop an app to provide its customers with a short-term loan, the CEO said Tuesday. Darrin 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 a small amount of credit to people over time, which will allow us to provide this lending alternative. payday to people,” Williams said. .
In disadvantaged communities, where residents’ banking options are limited, access to low-value, affordable 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 customers.
“The reason the payday loan industry is so prevalent is that there’s such a need for small dollar loans,” Williams said. “From a client’s perspective, we want to provide a responsible and responsive lending measure, 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, it should generate brand loyalty, according to Steinour, who said Standby Cash ranks as one of the most successful product launches in the bank’s history.
“It’s not something you say, ‘OK, I’ll get [a return on investment] to [this] in a year or two,” Steinour said of Standby Cash. “Over time it will be a brand splitter. … This will distinguish our set of products. If you look at who has the best pound-for-pound checking account and put that product on, no one else has it.
Although Huntington did not disclose Standby Cash statistics, “enrollment and product usage continue to exceed our initial expectations,” a company spokeswoman said Wednesday.
OneUnited expects to see a similar response for its CashPlease product, based on early indications from its customer base. OneUnited soft-launched CashPlease on the bank’s mobile app last month, weeks ahead of 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-cost loan products in the coming 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 need to lead the way in this area. There are so many… solutions that are not healthy.