Why it’s time for 36% APR?

July 16, 2018

by Ben Morales,  QCash CEO

While the financial services industry and its regulators debate what is the right APR for short-term, small-dollar loans, Americans in need of relief wait. Their waiting comes with a cost – a big one. PEW Charitable Trusts estimates U.S. consumers spend $9 billion annually on small-dollar loan fees. There is a number already vetted that would encourage more institutions to offer short-term credit at reasonable rates for consumers in need: 36. It’s time to stack hands on 36% APR and start helping more consumers get out of the debt trap.

Many advocates are already on board with the concept.

The National Consumer Law Center (NCLC) conducted research on how a 36% APR has legitimacy as a price point. They show that it would be a win-win for consumers offering access to affordable credit and would allow financial institutions to earn sustainable revenue to offer the loans.

Then there’s the FDIC pilot on small dollar lending that tested the 36% APR.  Additionally, the Center for Responsible Lending has stated its position that a 36% APR cap on payday loans most effectively stops the cycle of debt.

The Consumer Financial Protection Bureau’s most recent proposal would require lenders to underwrite payday and short-term small-dollar loans to ensure they are affordable to consumers. To avoid the stiffest requirements, such as assessing a borrower’s ability to repay a loan, installment lenders can opt for an alternative that effectively caps the rate at 36%.

Regulators state they want more lenders in the short-term loan market to help consumers; however, we already know the low success rate of expanding small-dollar lending at lower APRs. The NCUA allows for a 28 percent APR cap on small-dollar loans for federal credit unions, but it hasn’t generated much participation. In fact, fewer than 18 percent of credit unions offer these products today. The reason is that many justifiably believe they cannot create a financially sustainable short-term loan program with the 28 percent APR cap. That leaves tens of millions of credit union members lacking for a source of short-term credit without turning to predatory lenders.

The 36% APR is the sweet spot. And it’s already been tested and used for more than a decade. After all, it’s been the price point cap for small-dollar loans for military service members since 2006 as established by the U.S. Congress.

Yet here we remain in 2018 with no universal agreement on how to move forward in a balanced way. A 36% APR can work. Q-Cash Financial has delivered a fully automated digital small dollar lending platform for over 15 years to substantiate that a 36% APR is feasible. It’s feasible with the right automation. It’s feasible with the right underwriting criteria. It’s feasible with a true dedication to helping consumers caught in the struggle of everyday life.

As an industry, despite our best efforts and most polished mission statements, we often don’t fully understand the scarcity mindset of consumers caught trying to navigate their day-to-day financial lives. Helping cash-strapped consumers bridge a gap should be our calling as lenders, not just their problem as borrowers.

Let’s rally as an industry and collectively support a 36% APR as the right way and the only way we are going to deploy a sustainable product that challenges the predatory lending marketplace to drive prices down for borrowers.

It’s time to speak out and support a 36% APR on short-term, small-dollar loans. Anything less, leaves millions of Americans with no other choice but to use predatory lenders.

Find more at QCash Blog


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Outcomes Won’t Match Intentions: The NCUA Needs to Keep It Simple With Payday Alternative Loans (PALs)

May 30, 2018

by Ben Morales, QCash CEO

The third agenda item for the NCUA’s May Board Meeting is a “Notice of Proposed Rulemaking, Part 701, Payday Alternative Loans.” This discussion will focus on the following:

The NCUA is preparing an amendment to the NCUA’s general lending rule to provide federal credit unions (FCUs) with an additional option to offer Payday Alternative Loans (PALs). This proposal would not replace the current PALs rule, but rather would be an alternative, with differing terms and conditions, for FCUs to offer PALs to their members. Specifically, this proposal (PALs II) would differ from the current PALs rule by modifying the minimum and maximum amount of the loans, eliminating the minimum membership requirement, and increasing the maximum maturity for these loans. All other features of the current PALs rule would be incorporated into PALs II. The proposal would also pose specific questions to solicit comments and feedback from interested stakeholders on the possibility of creating a third alterative (PALs III), which could include differing fee structures, loan features, maturities, and loan amounts

While I’m happy to see the NCUA taking action on PALs, I’m equally concerned that our friends in Washington are making things a little too complicated.

Consumers are attracted to predatory lenders for a number of reasons, not the least of which is the simplicity of both the product and the process. If we want to pull members back from these lenders, we have to match them in simplicity. I can see no advantage to the member in creating multiple PAL options. In fact, I suspect having too many choices will drive members away from credit union short-term lending, back into the welcoming arms of the (very simple) predatory lenders.

Each small dollar loan tells a story that many of us have had to experience or can at least understand. If we can just take a moment to really understand the member journey and the use cases for when a small dollar loan is needed, the product requirements would be clear, simple and lead to common-sense regulation.

At QCash Financial we have seen credit unions confused on how to apply the PAL program in conjunction with the Military Lending Act (MLA) requirements. This confusion has led to lengthy compliance reviews and many legal opinions. Just imagine if we’re forced to reconcile multiple PAL options with the MLA. I predict that credit unions will opt out and not provide the service due to the risk of non-compliance. Credit unions will lose, and so will their members. This is exactly what happened to banks about 15-years ago when regulators were very prescriptive in their small dollar guidelines.

Let’s not add more complexity to a product that is clearly in the credit unions wheel house. I urge you to send a message to the NCUA to use a common-sense approach that is based on real feedback from those credit unions who are leaders in creating financial inclusion through their small dollar loan programs.

Vote for common sense regulation and make your thoughts known. Please join the discussion below.

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How does the new CFPB small-dollar loan rule impact the QCash Financial platform and credit unions?

What are the new CFPB regulations for small dollar loans and payday lending for credit unions?

May 17, 2018

by Ben Morales, QCash CEO

In late 2017, the Consumer Financial Protection Bureau (CFPB) finalized new regulations for small-dollar loans and payday lending.

QCash, a subsidiary of Washington State Employees Credit Union (WSECU), has engaged in conversations throughout the process, including WSECU President & CEO, Kevin Foster-Keddie who participated in the CFPB credit union roundtable. Foster-Keddie provided feedback to CFPB and shared the QCash experiences about short-term, small-dollar lending concepts as it applies to credit union members.

For QCash, the involvement in the new rule formation has been essential to understanding the impact on the platform and credit unions..

New CFPB Small-Dollar Loan Rule for Non-Covered Loans

The new small-dollar loan rule provides more regulatory guidance around non-covered and covered loans to borrowers who may be unable to pay the high fees typically attached with payday loans. CFPB cites that payday loans often force borrowers into another, short-term loan with an inability to pay, calling this process a “debt trap” for consumers.

Credit unions, however, have long provided members with Payday Alternative Loan (PAL) programs. These short-term, small-dollar loans are less costly for members than traditional payday lending.

The new CFPB rule provides a safe harbor for programs like the QCash financial platform and its non-covered loans, making it exempt from added regulatory burdens.

What is a Non-Covered Loan?

The CFPB defines a non-covered loan with an annual percentage rate (APR) of less than 36% and repayment terms that are greater than 45 days. These non-covered loans are exempt from additional regulations.

Covered loans (parameters greater than non-covered loans) will require supporting documentation from the institution, mostly focused on the borrower’s ability to repay.

QCash Automation Provides Compliance Assurance

QCash, developed before new CFPB regulations, is based on the premise that automation is necessary to deliver short-term, small-dollar loans. QCash’s automated workflow provides flexibility for credit unions to establish the methodology they choose and configure the options they want to include. The QCash financial platform also provides an all-in-one system for required documentation.

Although the new rule doesn’t impact QCash, the financial platform supports all applicable CFPB requirements. Credit unions have the assurance that QCash provides everything needed to continue to offer compliant, short-term, small-dollar loans to its members.

Learn more: QCash Blog

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Does QCash Offer Compliant Loans for Military Members Seeking Payday Lending?

May 14, 2018

by Heidi Tinsley, QCash Director of Client Success

Credit unions that serve military members can be assured that QCash, the short-term, small-dollar lending platform, offers compliant loans that meet military and Consumer Financial Protection Bureau (CFPB) regulatory requirements, especially for the military select employee group (SEG).

CFPB requirements state:
1. Loans may not have an interest rate of more than 36%.
2. Payment terms must be at least 45 days or more.
3. Disclosures must adhere to the Truth in Lending Act (TILA).

The ability to make loans available to military members is an option of the QCash platform that includes two types of programs — QCash and QCash Plus. Both include CFPB requirements, however, QCash Plus extends the loan amount up to $4,000 without a credit report.

With the QCash platform, each credit union has the ability to configure fees based on its market and member base, allowing military members to receive payday lending and short-term, small-dollar loans.

The QCash financial platform provides an advantage for credit unions to serve the military market since not all credit unions offer these lending programs. When a credit union incorporates QCash as part of its system, military members will have access to instant funding with no credit report required and repayment terms of up to 36 months — features previously unavailable.

QCash is fully compliant with military and CFPB requirements, presenting credit unions with a program to welcome military members with access to short-term, small-dollar loans.

Learn more: QCash Blog

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How does QCash financial make it easy to update truth and lending disclosures?

May 10, 2018

by Heidi Tinsley, QCash Director of Client Success

A question I often receive from credit unions involves regulatory concerns in operating payday loans. Credit Unions often want to know how Truth and Lending disclosures are updated and maintained in our Digital Lending Platform.   If you have this concern – then this article is for you!

First – what is truth in lending?   Lenders must provide a Truth in Lending (TIL) disclosure statement that includes information about the amount of your loan, the annual percentage rate (APR), finance charges (including application fees, late charges, prepayment penalties), a payment schedule and the total repayment amount over the lifetime of the loan.

With QCash Financial, our platform includes the ability to update and upload your own Truth in Lending disclosures. The Truth in Lending regulations guide much of the basis for QCash as a means of keeping the system legal and usable option for credit unions. For the sake of transparency, we make that information available to credit unions.

We offer the ability to loan to military borrowers, thus opening the door for QCash to be used for military borrowing and opening up an entirely new facet of the business we hadn’t tapped into prior. This additional resource allows for a wider range to be covered by what QCash offers. Offering payday lending to military borrowers let’s QCash expand its business far beyond our previous limitations.

We also have e-signature compliance guidelines in place that we offer through our platform, along with automatic repayment set up when the loan is booked and funded to the member’s account. E-signature requirements provide a level of security within QCash transactions. This can further guarantee the convenience of using QCash for credit unions. Automatic repayments meet the regulation requirements while also providing a level of convenience for credit unions. The automatic repayment system saves credit unions the trouble of organizing the repayment of small-dollar loans. With the automated QCash system, they no longer have to take time to setup these repayments.

By incorporating Truth in Lending documentation, we make it easy as we can for credit unions to follow the legal regulations set in place. QCash allows for credit unions to incorporate payday lending without any worry in regards to falling in line with regulations.

Learn more: QCash Blog

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Will my credit union maintain CFPB compliance with the QCash short-term, small-dollar lending platform?

May 7, 2018

by Heidi Tinsley, QCash Director of Client Success

Credit unions interested in QCash, the short-term, small-dollar lending program, want to make sure that it complies with Consumer Financial Protection Bureau (CFPB) regulations.

Here are the three requirements for the QCash short-term, small-dollar lending program to maintain CFPB compliance:

  1. Loans may not have an interest rate of more than 36%
  2. Payment terms must be at least 45 days or more
  3. Disclosures must adhere to the Truth in Lending Act (TILA)

QCash also provides the following assurances:

As a short-term, small-dollar lending program, QCash maintains ongoing compliance with CFPB regulations.

QCash ensures compliance by utilizing necessary resources and staying aligned with compliance regulations.

QCash provides web-based features like TILA documentation and e-Signature capability.

With QCash, credit unions have immediate access to all TILA documentation to upload and print as required to provide borrowers. The built-in e-Signature feature provides an extra layer of security to protect members’ transactions, keeping private information and digital data safe.

QCash allows credit unions to offer short-term, small-dollar loans to military members and stay in compliance with CFPB.

QCash provides credit unions the ability to offer loans to military members, increasing the service level for this important market segment.

Automated payment schedule

QCash initiates and automates a repayment schedule when the loan is funded, eliminating extra steps for the credit union and delivering members the convenience of automated payments.

QCash is CFPB compliant with its automated repayment processes and technology.

The QCash automated repayment process and technology for member loans is CFPB compliant.

QCash technology and methodology follows CFPB regulations.

The QCash short-term, small-dollar lending platform technology and methodology are CFPB compliant.

Learn more: QCash Blog

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What is a digital lending platform?

May 3, 2018
by Ben Morales, QCash CEO

When I tell people that QCash is a digital lending platform, they often ask what I mean by that. Here are a few highlights.

In short, a digital lending platform like QCash leverages social, mobile, data analytics and the cloud to create a lending process that’s efficient for the financial institution and easy for the borrower.

When we first started developing the QCash program, there was a lot of paper involved. We knew we had to do better because all around us, mobile was exploding and so-called fintech companies were focusing on new ways to harness data analytics and the cloud.

These fintechs were focused on tapping into social capabilities. We looked at that and said, “That’s something we need to emulate. We need to bring that into our product if we’re going to make it affordable, scalable and be able to adapt and evolve in a way driven by the future needs of our members.” Because of this, we chose to prioritize the cloud and mobile financial technology.

For the first few years, this product lost money. Not very many of our members at WSECU used it. It was too much of a hassle in its earlier iterations. There were two primary causes of this:

1. A lot of people were involved. This overloaded the process and made us realize we needed a more automated system.
2. It was a long process that required quite a bit of back and forth between the member and our staff.

Because of this long process, we began to evolve the platform to be much more streamlined. We did this through the establishment of further automated underwriting processes. This in turn cut out the need for so much employee involvement.

Essentially, that’s how I characterize a digital lending platform. Its focuses are social, mobile analytics and the cloud. When you get all of these working in concert, you can create a system that truly benefits both the credit union and its members.

Learn more: QCash Blog

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Loan Basics

April 30, 2017

by Ann Flannigan, Vice President of Human Resources, WSECU

QCash Loan Basics

Life is full of surprises. Unfortunately, some of those surprises are more expensive than others. QCash loans were designed to help consumers with life’s unexpected expenses.

QCash loans are convenient.

Applying for a QCash loan is fast and easy using our online application process. In many cases, you can find out whether you’ve been approved in just a few seconds. This speedy process helps minimize the uncertainty that comes along with any unexpected expense.

QCash loans are flexible.

Unlike, for example, an auto loan, a QCash loan can be used for any purpose you want. If your car breaks down between paydays, QCash is there. If your pet is injured and requires an emergency visit to the veterinarian, QCash is there. We never ask about the purpose of the loan, so your privacy is ensured.

QCash loans are affordable.

QCash provides the convenience of a payday loan, but with friendlier terms. While QCash and payday loans have a couple of things in common, QCash loans are much less expensive. Plus, you have the comfort of dealing with a financial institution that you already know and trust. Just for comparison’s sake, a typical payday loan costs the consumer $15-$30 for every $100 borrowed. On the other hand, a QCash loan costs $10-$12 for every $100 borrowed. That difference can really add up.

QCash is designed to help consumers.

Payday lenders are in business to make as much money as possible from the people they lend money to. Yes, they may provide money when you need it, but as noted earlier, it’s very expensive money.

QCash loans are offered by your credit union. Because credit unions are not-for-profit, member-owned financial institutions, they’re goal is not to maximize profits. On the contrary, their goal is to help members meet their financial needs. And when those needs are sudden, QCash is the ideal alternative to a predatory payday loan.

QCash provides loans to meet a variety of needs.

In addition to a standard QCash loan, we also offer a QCash Plus loan. QCash loans range from $50 to $700, with no credit check. These loans are instantly funded and, unlike pay day loans, you have a 60-day repayment period. With a standard QCash loan, you pay just $12 per $100 borrowed.

QCash Plus loans are for amounts from $701 to $4,000. Much like QCash, there’s no credit check. However, there is a $25 application fee. Instead of paying $12 for every $100 you borrow, you pay an interest rate of 36%. That’s significantly less than the triple-digit interest rates that payday lenders charge. These loans are also funded instantly, but the repayment term depends on the amount borrowed.

QCash Plus can help you break the payday loan cycle.

It may sound odd, but QCash Plus can even help you get out of debt. Unfortunately, many consumers get stuck in a cycle of renewing their payday loans week after week, month after month. However, a QCash Plus loan may provide you with enough money to meet your short-term financial needs and pay off other outstanding debt.

QCash loans are easy to apply for.

The QCash loan application is quick and easy to complete. Because we know life happens outside of credit union hours, we’ve designed a simple online application process available right on the credit union’s website. Just fill out the required information and submit the application. You’ll typically get a decision within a few seconds. And if you’re approved for QCash or QCash Plus, you’ll get instant funding into your credit union account.

QCash loans are available 24/7.

With QCash and QCash Plus, credit union members get convenience, speed, and flexibility literally at their fingertips. To learn more about QCash products and how they may be able to help you in an emergency, talk with your credit union representative or simply apply on the credit union’s website today.

Learn more: QCash Blog

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The benefits of credit union payday lending

What are the pros and cons of payday lending for credit unions?

By Kevin Foster-Keddie, CEO of WSECU
April 26, 2018

People sometimes ask me, “Why did you get into payday lending?” In fact, I’ve had people ask me why I was crazy enough to get into payday lending.

The reason is member need. At WESCU, we noticed that members were transferring large amounts of money to payday lenders. It was over a million dollars a year, and that was 15 years ago. It’s even more today.

The more we studied it, the more we learned how expensive it was. We learned that people were being trapped in payday lending. So we said, “Hey. We’re a credit union. We’ll make small loans.”

Credit unions, philosophically, started by making small loans to average people; so, we decided this is was the direction to go. Fortunately for us, we had a board member whose brother was a pawn shop owner. He was very, very connected to the industry, knew a lot about it, and was instrumental in the organization of this project. He convinced the other board members it was a good idea.

We definitely had our share of naysayers. But I’m a persistent fellow and the more that people said, “You are crazy. You shouldn’t be doing this,” the more I said, “I’m going to show you guys.”

At first, it was a paper based and very labor intensive process. We were trying to help our members find a better and cheaper alternative, and then later mainstream them into more traditional lending. Eventually, we got better and better at it. We hired the right people and we started on the project. We made it faster. We got it onto a computer. Then, we added mobile technology. We realized, as we watched the activity of our QCash loans, that speed was everything.

If you’re a CEO who is thinking about QCash, your job is to serve your members. With QCash, you may be targeting a market that you don’t traditionally serve, and that’s going to open up a lot of possibilities for you. QCash will help your organization learn about technology, data analytics, mobile technology and product design. The kind of competencies an organization will learn go far beyond the actual business results of the payday lending.

And then there’s the bonus that Qcash accounts for 20% of WSECU’s net income. You must think about small dollar loans from a business perspective as well.

Payday lending has been a great thing for us and our staff. They feel like they’ve got another tool with which they can help members. Our dream is to put all these together in a cash management electronic product, and we’re working on that dream very hard right now. We want to put all these ideas together into one global product.

Qcash helps WSECU members with their needs today. And, it enables us to be constantly pushing the use of technology to speed up, digitally engage and lower the cost of helping our members. That’s a very convincing business proposition.

Learn more: QCash Blog

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If payday lenders disappear, will Americans survive?

April 23, 2018

Ann Flannigan, Vice President of Human Resources, WSECU

According to a recent survey conducted by CareerBuilder, eight out of 10 Americans live paycheck to paycheck. They are not able to save money for an unexpected expense. Most financial advisors recommend three to six months of living expenses in a savings account. Yet, 35% of Americans have fewer than $500 in savings.

If Americans are living paycheck to paycheck and have less than $500 in savings, what happens if there’s an emergency that costs them at least $1,000? With payday lenders shutting down and being subjected to such strict regulations, how will Americans survive?

It’s a fair question. But there’s a good reason regulators are requiring new payday loan regulations.

How payday loans work

While payday loans certainly fill a valid consumer need, it’s important to consider the loans’ long-term effect on borrowers. In an actual emergency, people are desperate for money and won’t necessarily read (or think about) the fine print. Or even if they do read the fine print, they’re willing to accept terms they wouldn’t under normal circumstances. After all, if they’re facing a medical emergency, they’re more concerned about your health or the health of their family member or beloved pet than negotiating a contract that discloses the interest rate or the fees associated with renewing the loan.

If they have a $700 emergency or unexpected expense, maybe they could have managed to pay that out of their next paycheck. But a $700 payday loan doesn’t just cost $700. There’s interest to pay. On average, a payday loan has somewhere between a 400% and 790% interest rate. What’s 400% of $700? The answer is $2,800. Over the course of a year, if a borrower kept renewing the loan, it would cost them almost $3,000. And that’s just the low end of the interest scale – we don’t have to show you the math for an annual 790% interest rate to make that point.

When payday loans are renewed, the lender often requires the borrower to pay a renewal fee as well. Yet, many borrowers don’t recognize that interest rate is also accruing on the amount owed. Depending on the structure of the payday loan, it can only be renewed so many times before the lender takes the full payment, usually via ACH out of the borrower’s bank account. While this helps stop people from going further into debt because of interest, the full amount is usually a shock to the borrower.

CFPB regs explained

The Consumer Finance Protection Bureau (CFPB) released new rules in 2017 regulating payday loans, auto title loans, and advance deposits that require full payment, because they leave borrowers in an even worse financial situation. These borrowers are already stretched to their financial limits. Requiring them to repay payday loans in full usually means they no longer have the ability to pay for groceries, electricity or rent.

Of course, predatory payday lenders are well aware of this conundrum. In fact, it’s the cornerstone of their profitable business model. Once a customer, always a customer.

Under new CFPB regulations, in states where payday lending is legal, lenders must now use a repayment test known as the “full-payment test.” It requires proof of income from borrowers, and also limits the number of payday loans to no more than three loans “in quick succession.”

Lenders are also required to use credit reporting systems registered through the CFPB to get information and report the loans they’re funding.

There’s one exception to the new rule: Consumers borrow up to $500 without passing the full-payment test if the loan allows the borrower to repay it over time, in installments. However, if the borrower has an outstanding payday loan, recently took out a payday loan, or has an outstanding balloon payment loan, they cannot be approved for an additional payday loan under this exception.

QCash bridges the payday loan gap

Credit union members have an alternative to traditional predatory payday loans. QCash is a short-term loan solution in which borrowers can conveniently apply online with no credit check. With QCash, borrowers can apply to receive an instantly funded, short-term loan of up to $700. Installment payments are automatically drafted each month from their credit union or bank account.

The interest rate on Q-Cash is significantly lower than traditional payday loans. With Q-Cash, borrowers pay just $12 for every $100 they borrow. That’s around 12% interest each year. So, a $700 Q-Cash loan would cost around $784. Compare that to our $700 payday loan example above that cost $2,800.

QCash Plus is available for borrowers who need more short-term loans between $701 and $4,000. The interest rate for QCash Plus is 36%. The application process for QCash Plus is very similar to that of QCash. It’s done online. There’s no credit check. However, there is a $25 application fee.

If approved, the borrower’s account is instantly funded. Repayment is the same as with QCash: Each monthly payment month is automatically deducted from the borrower’s account.

The goal of QCash and QCash Plus is to provide credit union members with a way they can meet their short-term needs without taking out dangerous payday loans. Our solution ensures that Americans will not only survive short-term financial needs, they will thrive long term.

Learn more: QCash Blog

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