By Laine Crosby
More than most states, Mississippi, has a need for financial institutions that offer small-dollar loans for consumers who are trapped in the payday loan cycle, and who may be unbanked or underbanked.
The state has more payday lenders per capita than any other state and also leads the nation in credit card payment delinquencies, according to Mississippi Treasurer Lynn Fitch.
In light of these facts, BankPlus of Ridgeland, Miss., decided in 2008 to develop a small-dollar lending program, called CreditPlus, designed to provide a low-cost alternative for consumers who normally use payday lenders.
Although many banks offer small-dollar lending, BankPlus took the concept several steps further. Participants are required to take a financial literacy course prior to receiving a loan and are encouraged to develop healthy financial practices through the use of both checking and savings accounts. To date, BankPlus has originated through the program more than 21,000 loans for over $16 million.
CreditPlus also helps to differentiate the bank, demonstrating its high level of concern for the financial well-being both of consumers and the community.
Prior to receiving a loan, participants are required to take a three-hour financial literacy course that provides important information to help participants make wise financial decisions. The course, which is adapted from the FDIC’s Money Smart curriculum, covers information about credit, responsible borrowing, budgeting, savings and money management, credit reports and repairing credit history. The course is conducted by bank personnel and is offered to the public at churches, businesses, schools and nonprofit organizations. There is no cost for the consumer. Online registration is available for the course at www.BankPlus.net. To date, over 21,000 people have attended more than 600 financial literacy sessions across the state.
Small-dollar loans are made in the amount of either $500 or $1,000. The interest rate is 5 percent and there are no closing costs or fees. As recipients repay the loan in a timely manner, they rebuild credit or begin credit history in a positive way.
A checking and savings is also established for each customer. Half of the loan is deposited into the savings account and held as security. Upon repayment of the loan, these funds become available to the customer. Participants are encouraged to begin a savings program and add funds to the savings account regularly. A new checking account is also opened and customers are encouraged to use it as their primary account. This account offers the bank’s premium services of free online banking and online bill pay, free ATM usage across the country and e-banking.
Many participants used payday loans
Surveys filled out by participants in the financial literacy course show that roughly 50 percent of the people have had a payday loan at some time and over 30 percent have had a car title loan. Both of these products are typically high interest rate. The training helps educate participants on how different types of credit can work for them or against them. The loan program saw steady growth for several years and now, firmly established, there is a steady rate of new loans to balance those being paid off by the customer or closed for lack of payment.
The innovative components of the program allow participants to apply their knowledge from the financial literacy course in a real-world setting. Participants manage their finances through their own checking account, while simultaneously maintaining savings and paying off their CreditPlus loan. Upon completion of the program, CreditPlus participants have learned real financial management and have the confidence to move into more traditional banking products.
The program is directly overseen by Jack Webb, senior executive vice president and chief retail banking officer. The CreditPlus staff has regular meetings with the bank’s Executive Management Team. BankPlus employees are directly responsible for teaching the CreditPlus Financial Literacy Seminar materials. Over 190 employees have participated at the seminars, many of them multiple times a year. Most seminars are held after hours and on weekends. Bank staff compile over 3,000 hours per year of after-hours service to conduct CreditPlus seminars.
The bank has engaged local nonprofits, nearby universities, churches and public schools to inform their respective community about the program, as well as host seminars on their premises. In turn these organizations often have their employees, students and members sign up to attend the seminars. A few of these organizations include Jackson State University, Jackson Public Schools, Strayer University, Holmes Community College, Multi County Community Service Agency, The Salvation Army Corps, WIN Job Centers, public libraries, several sororities and many churches across the state.
Community development outreach
BankPlus benefits from this program by providing a service in Mississippi that other lenders do not offer. CreditPlus customers remain with the bank after they have finished repaying their loan, with the number of open, active CreditPlus checking and savings accounts exceeding the number of active CreditPlus loans, with 6,049 checking accounts and 5,986 savings accounts and deposit balances of over $5 million. In addition, active loans average 3,800 per month.
Because of the success and demand for the CreditPlus program, the bank has created CreditPlus Auto for customers that have completed the CreditPlus program, so that they might purchase a new or used motor vehicle. In addition, the bank has created BusinessPlus, a program similar to CreditPlus that helps educate small-business owners about creating true business plans and strategies, as well as prosper business management.
As a result, CreditPlus significantly enhances the bank’s community development outreach. As a Community Development Financial Institution, BankPlus includes community development as one of its major objectives. It believes that its CreditPlus program has significantly enhanced the bank’s community development outreach.
In 2015, BankPlus won an ABA Community Commitment Award for its CreditPlus Initiative in the category of “Nontraditional Borrower and Underbanked.”
Laine Crosby is the editor of ABA Bank Compliance magazine.