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‘CashPlease’: Small bank debuts alternative to payday loans

'CashPlease': Small bank debuts alternative to payday loans
Written by Publishing Team

This week, Wells Fargo joined the list of big banks offering short-term credit products — and the much smaller OneUnited Bank in Boston unveiled a version of its own, intended to be an alternative to payday loans.

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

OneUnited’s rollout of CashPlease comes after similar micro-dollar loans were offered by several large banks. In October 2020, for example, Bank of America launched Balance Assist, which offers loans of up to $500 for a $5 flat fee and a repayment period of three monthly instalments.

Wells Fargo expects it offer her loan By the end of 2022. It will save up to $500 for a fixed fee that has yet to be determined, payable in three equal monthly instalments.

In June, Columbus, Ohio-based Huntington Bankers rolled out its $174 billion in assets. Reserve cash programDigital-only credit limit from $100 to $1,000. If borrowers agree to pay it back in three monthly installments that are automatically drafted from their account, the Huntington loan is free. Otherwise, it carries an annual percentage rate of 12%.

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

“The reason the payday lending industry is so prevalent is because there is such a need for micro-dollar lending. From a customer perspective, we want to offer a measure of responsible and responsive lending, where you don’t fall into the debt trap.

The value of the CashPlease loan ranges from $200 to $1,000. It carries an APR of 47%—much 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 didn’t do this for revenue,” Williams said. “We’ve tried to identify ways that…would not cost us money but would allow our clients to avoid practices that put them in poor condition in a way from which they cannot return.”

CEO Darren Williams said Tuesday that another community bank, $2 billion Southern Bancorp in Arkansas, Arkansas, said it plans to develop an app to provide its customers with a short-term loan.

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

“What we hope to be able to do is use customer data to build some underwriting criteria and see how we can offer people a small amount of credit over time that will allow us to offer this alternative payday loan to the people,” Williams said.

Williams added that in underserved communities, where residents’ banking options are limited, access to affordable microcredit is critical. Oftentimes, payday lenders are the only option. In fact, a study Published in the Emory Law Journal in April found that ads for payday lenders were disproportionately targeting African American and Hispanic clients.

“The reason why the payday lending industry is so popular is because there is such a need for micro-dollar lending,” Williams said. “From the customer’s point of view, we want to offer a measure of responsible and responsive lending, where you don’t fall into the debt trap.”

Like OneUnited, Huntington does not expect to generate significant returns from ready cash. Chairman and CEO Stephen Steinor said in a recent interview that the company could in fact experience a small loss in the short term. However, over time, it should generate brand loyalty, according to Steinor, who said Standby Cash Ratings was one of the most successful product launches in the bank’s history.

It’s not something you say, ‘Okay, I’ll get it [a return on investment] employment [this] In the next year or two,” Steinor said of Standby Cash. “Over time, this will be a watershed for the brand. … this will characterize our product range. If you look at who has the best pound-for-pound checking account and put this product down, no one else will have it.”

While Huntington did not disclose statistics on “ready cash,” “product registration and use continue to exceed our initial expectations,” a company spokeswoman said Wednesday.

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

“We see our experience as — I hate to use that term — sort of like a canary in a coal mine,” Williams said. We believe, as an industry, that banks need to lead in this area. There are a lot of… unhealthy solutions. “

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