MANHATTAN BEACH, Calif. (6/5/14)--A California-based credit union is one of five institutions to begin piloting a type of small-dollar loan program whose creator, the Center for Financial Services Innovation (CFSI), hopes will lead to better financial health for millions of borrowers.
Kinecta FCU, Manhattan Beach, Calif., with $3.2 billion in assets, as part of the Small-Dollar Credit Test and Learn Working Group, will roll out a payday consolidation loan this month that will enable members to convert multiple outstanding payday loans into a single installment loan.
Consumers spent more than $41 million in 2012 on small-dollar credit products such as payday loans, deposit advances and auto title loans, often receiving the loans from predatory lenders who charge unmanageably high-interest rates that can shove borrowers deep into debt (News Now Feb. 28).
Each of the members of the Working Group, funded by the MetLife Foundation, the Ford Foundation, and the Omidyar Network, will test a different small-dollar loan tool, which harness ideas developed by CFSI's Compass Guide to Small-Dollar Credit, released earlier this year.
"We believe that supporting initiatives like the Test and Learn Working Group will offer critical insights into aspects of financial inclusion that will enhance programs and advance our common goals," said Dennis White, president/CEO of MetLife Foundation. "We know that providing access to quality, affordable products and services for low-income individuals and families is important, but it is equally important to ensure that these programs advance research and deepen knowledge in this area."
Other institutions within the working group will test programs that will allow consumers to borrow money with less funds in their savings accounts; increase usage of a "Save as You Repay" program that incentivizes consumers to contribute additional funds to their savings each time they make a payment on an installment loan; and provide access to an online loan product where consumers can customize their loan terms and monthly payment amounts.
As defined by CFSI's guide, high-quality, small-dollar loans: