This week, Wells Fargo joined the list of big banks launching short-term lending products — and the much smaller OneUnited Bank in Boston unveiled its own version intended as an alternative to payday loans.
OneUnited’s loan, called CashPlease, is designed to help the bank’s $635 million clients manage their cash flow without the hurdles and higher costs that some other lenders may impose. Instead of running credit checks, applicants’ account history and other aspects of their relationship with the bank are examined. Funds arrive within four hours of loan approval.
OneUnited’s launch of CashPlease follows the launch of similar small dollar loans by several major banks. For example, in October 2020, Bank of America introduced Balance Assist, which offers loans of up to $500 for a flat fee of $5 and a repayment period of three months.
Wells Fargo expects this offer his credit by the end of 2022. It will provide amounts up to $500 for a flat fee to be determined and will be repaid in monthly installments.
In June, $174 billion Huntington Bancshares launched theirs in Columbus, Ohio Standby Cash Program, a digital-only line of credit ranging from $100 to $1,000. If borrowers agree to repay it in three monthly installments that are automatically deducted from their accounts, the HD loan is free. Otherwise an APR of 12% will be charged.
OneUnited doesn’t have the deep pockets of a Wells, BofA or Huntington, but it has recognized the need for low-cost, short-term credit in its communities, according to Teri Williams, OneUnited’s president and chief operating officer.
CashPlease loan values range from $200 to $1,000. It has an APR of 47% — significantly less than the cost of a payday loan — and is also payable in three monthly installments that are deducted from the borrower’s checking accounts.
“We won’t lose any money [but] We didn’t implement this for revenue,” Williams said. “We’ve tried to find ways that … don’t cost us money but allow our customers to avoid practices that put them in the red so they can’t come back.”
Another community bank, the $2 billion Southern Bancorp in Arkadelphia, Arkansas, said it plans to develop an app to provide short-term credit to its customers, CEO Darrin Williams said Tuesday.
Southern, certified as a Community Development Financial Institution, offers its employees an emergency loan of up to $1,000 that is deposited into their checking accounts almost immediately and is payable over 12 months. The goal now is to develop something similar for its customers.
“We’re hoping to use customer data to create some underwriting criteria and figure out how, over time, we can lend people a small amount of credit that will allow us to offer this payday loan alternative to people,” Williams said.
In disadvantaged communities where residents’ banking options are limited, access to affordable small credit is crucial, Williams added. Often payday lenders are the only choice. In fact, a to learn The study, published in April in the Emory Law Journal, found that payday lenders’ advertising was disproportionately targeted at African American and Hispanic customers.
“The reason the payday loan industry is so widespread is because of the huge need for small loans,” Williams said. “From a customer perspective, we want to provide a level of responsible and responsive lending that doesn’t leave you trapped in a debt trap.”
Like OneUnited, Huntington doesn’t expect to see significant revenue from standby cash. Chairman and CEO Steven Steinour said in a recent interview that the company could suffer a small loss in the near term. Over time, however, it should create brand loyalty, according to Steinour, who said Standby Cash was one of the most successful product launches in the bank’s history.
“It’s not something where you say, ‘Okay, I’ll get it [a return on investment] on [this] in the next year or two,’” Steinour said of Standby Cash. “Over time, this will be a brand separator. … This will distinguish our product range. If you look at who has the best checking account pound for pound and you create this product, nobody else has it.”
While Huntington hasn’t released statistics on Standby Cash, “registration and usage of the product continues to exceed our initial expectations,” a company spokeswoman said Wednesday.
OneUnited expects a similar response for its CashPlease product based on early indications from its customer base. OneUnited soft-launched CashPlease on the bank’s mobile app last month, a few weeks before its official release on Tuesday. Even without further marketing, a number of customers have taken out loans, Williams said, adding that she expects more banks to develop competing small-dollar lending products over the next few years.
“We view our experience as – I hate to use that term – like a canary in a coal mine,” Williams said. “We believe banks as an industry need to be leaders in this space. There are so many … solutions that are not healthy.”