Freedom First CU: Making Small-Dollar Loans More Efficiently
By John San Filippo
Roanoke, Va.-based Freedom First Credit Union ($1.2 billion in assets; 63,000 members) won the 2024 Tekkie Award for Increased Efficiency based on the credit union’s implementation of the QCash Financial lending platform to more efficiently serve underserved members in the community. Finopotamus spoke with Senior Vice President of Community Development Dave Prosser to learn more about this effort.
Freedom First is well-positioned to serve all members of the community. “In 2000 we became a CDFI-certified development financial institution,” Prosser told Finopotamus. “That coincided with our low-income designation as well. The clients that we serve represent a huge area of low- and moderate-income households. So, it was important to us to develop products and services to serve the members in our own neighborhoods.”
Describing some of the program at the credit union, Prosser continued, “We address affordable housing needs. We have a car loan program called Responsible Rise that puts low-income families that are credit challenged or with no credit scores into reliable transportation because of the rural nature of our community. We're heavy into financial education, financial coaching.”
Life Before QCash
Prosser said that Freedom First already had a small-dollar loan program prior to implementing the QCash platform. “We had what we called a payday alternative loan, or PAL loan, which is different from what NCUA calls a PAL loan,” he explained. “We had to make sure the person was a member of the credit union. We had to underwrite the loan. We had to collect the documentation that went along with that.”
He added that another downside to that PAL product is that it was not anonymous, (i.e., the applicant had to interact with a live agent, which might be embarrassing to some). “People had to still go through the application process, so it wasn't quick and fast,” he noted. “We needed something that was more anonymous and provided quick cash that acted more like a traditional payday loan if they were to walk into the corner market payday shop. The QCash product really checked all those boxes for us because it was quick and it was easy and people could get their money that fast.”
More Efficient Lending
“The QCash concept is that with a few clicks through our mobile app or through our online banking platform, a member can easily apply for a small-dollar loan,” explained Prosser. “Even if you were standing in the checkout line of the grocery store and weren't sure you had the money to pay for your groceries, you could within two minutes have that money directly deposited into your account and available to pay for your groceries.”
According to Prosser, under the best circumstances, the credit union’s old PAL loan might take two hours to process. And because they required manual underwriting, they simply weren’t possible on the weekend.
“If your car broke down Saturday afternoon, that would be a problem then,” said Prosser. “In that case, you’d have no option but to go get a payday loan.”
Prosser noted that the inefficiencies of the old PAL loan platform also made them more costly for the credit union. “It was important for us to understand the efficiencies of the process,” he said. “When you look at somebody that has to take an application, has to run the transaction, has to underwrite it, it can be quite costly as far as originating that loan. But with the QCash product, because it's all automated and no human being is involved in the process, it can be done quite efficiently and at a huge cost savings for the credit union, as well.”
Why Anonymity Matters
Prosser stressed that anonymity is an essential component of the QCash platform.
“I've done some research about why people use payday lenders,” he told Finopotamus. “The anonymous component of it is huge. I don’t want to have to go to somebody that I know. The credit union teller might be my neighbor, or maybe just somebody I see when I go in to cash my paycheck. I might be too embarrassed to ask that person for a short-term loan of some sort. That’s a huge component of why people use payday lending.”
Prosser added, “What's been great for us as well as a CDFI and part of the CDFI fund, we've also been able to get different funding sources and grants because the CDFI fund has grants available for attacking predatory lending.” He said that some of that money can then be used to strengthen and expanded the credit union’s small-dollar lending program.