Credit unions have an opportunity to fulfill one of their members’ unmet needs through small-dollar lending solutions. Members frequently turn to payday lenders to address their short-term lending needs, instead of engaging with their credit union for these services. Members turn to sources outside of their credit union simply because very few credit unions are currently offering these product types. One of the major reasons credit unions have not adopted these products is fear. The four primary fears which cause credit unions to avoid providing small-dollar lending services are the financial risk of implementing a new product; pending regulatory changes proposed by the CFPB; potential reputational risk; and draining financial resources. While these fears are extremely common in the credit union community, they are easily overcome.
1. The financial risk of implementing a new product.
Many credit unions hesitate to launch a small-dollar loan product because of the perceived financial risk. Adding a new product can have certain initial costs, such as the need for additional staff. However, the right solution will pay for itself in a short period of time, and fully automated loan technology can eliminate the need for additional staff members. Credit unions have the opportunity to look to these proven solutions to find best practices to avoid any financial loss, when launching small-dollar lending solutions.continue reading »