Nix Neighborhood Lending looks a lot like a payday lender, but it’s not.

Nix, a subsidiary of Kinecta Federal Credit Union of Manhattan Beach, markets credit products similar to those of a traditional payday lender, but they’re actually credit union loans and operate under different terms.

For example, Nix’s 33 branches offer small-dollar, short-term credit structured like payday loans but with lower fees than most lenders.

Nix’s version of a payday loan comes with a 15 percent annual percentage rate and a $32 application fee. In other words, borrowing $255 with Nix’s advance would incur fees slightly more than $33, compared with $45 for an actual payday loan regulated by the state. Consumers can borrow between $200 and $400. Payment is due on the borrower’s next payday and fees have to be paid up front.

“As a federal credit union, we’re not limited by California regulations,” said Luis Peralta, president of Kinecta’s alternative financial solutions division. “That’s why we’re able to develop a more consumer friendly and cheaper offer.”

Last year, the credit union took a step further and started offering Payday Payoff Loans at Nix locations. This product allows borrowers to take out cash to pay back one or more payday loans, effectively consolidating them. Borrowers then pay the debt off over a longer period with more flexible terms. Payment amounts are limited to 5 percent of their income.

Payday Payoff Loans range from $500 to $2,500, last up to 24 months and come with a $50 application fee and 18 percent APR. Unlike payday lenders, the credit union reports Payday Payoff Loan payments to major credit bureaus, helping consumers build a credit history.

After buying Nix Check Cashing in 2007, Kinecta realized Nix’s customers were very comfortable with alternative financial services such as check cashing, prepaid cards and wire transfers. But a lot of them had bad credit scores or no credit history at all and were struggling with credit access.

“That lead us to develop our version of a payday loan,” Peralta said.

Seeing consumers misuse payday loans eventually lead Kinecta to develop its consolidation product.

Kinecta partnered with LexisNexis to develop a test to determine if the loan would improve borrowers’ financial health and be profitable for the credit union.

“The price is a win-win,” Peralta said of the end result. “(Borrowers) are saving hundreds or thousands of dollars depending on how much they’re consolidating. At the same time, we are keeping this product profitable and sustainable.”

Alex Horowitz, an officer in Washington, D.C., with the Pew Charitable Trusts’ small-dollar loans project, said the Payday Payoff Loan is unusual because he doesn’t see a lot of small loans from banks and credit unions. He partly credited Kinecta’s success to limiting payments to an affordable amount of borrowers’ income.

“What this credit union has done is used a streamlined underwriting standard,” said Horowitz. “It keeps costs down.”

As of Nov. 30, Nix had lent $10.4 million through 8,100 payoff loans, which in turn retired 35,000 payday loans. Nix launched the product in June of last year and has written off about 5 percent of that total. For comparison’s sake, about 3 percent of credit card loans have been written off over the past year, according to the Federal Reserve System.

“The community is loving this product,” Peralta said. “They are doing a lot of word of mouth, which is the cheapest acquisition cost we can have.”

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