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CREDIT CARDS WITHOUT Co-signers

Schermerhorn, Kelly V

Let me introduce you to a member of my credit union: 18-year-old Cory Chapman. Cory is a founding member of our program, TeenPac. We designed this youth program to be different from its inaugural meeting - on September 11,2001.

It's a great testament to the quality of character of teenagers like Cory that participation that night exceeded the number who had signed up to join the club. Although officials throughout the country were closing public buildings and sending kids home early, and employers were locking their doors, these teenagers were able to concentrate on their futures and have a productive meeting.

An unusual youth club

TeenPac club members come to the credit union for a unique personal experience. Joining is simple: You must be 15 to 17 years old, have a job outside of the home, and be a member of the credit union. What you don't need is a parents signature... for anything.

Learning requires motivation. What motivates TeenPac members is that, because there is no adult safety net, they understand that this is truly their checking account, their debit card, their Visa credit card and their responsibility.

When I first proposed to the board of directors that we would begin lending to teenagers, who can't enter a legally binding contract, there was some skepticism. However, after looking at the numbers, the directors approved the program unanimously.

We expect no more than 100 kids to be involved at any one time because of the job requirement and the lack of access to the general school population. Every club member begins with a credit limit of $100. However, even if all 100 teenagers maxed out, our risk would be a mere $10,000.

The board agreed that the likelihood of 100 participants maxing out the card and refusing to pay was nonexistent. All they asked is that if we have more than 50 participants at a time, that I report the programs performance on a separate line item in the financials.

The teenagers come through

TeenPac's performance has been very good. Have our teenagers discovered that, as minors, they legally don't have to pay their bills? Oh, yes. So far I've seen a grand total of about $200 in unpaid balances.

I'll bet most credit unions wouldn't bat an eye about spending $200 on incentives to get the teens to participate in a youth program. But a charge-off? No way!

Come on, folks, get real. You deal with costs and risks for adult members every day. Shake your assumptions about minors and apply the same risk management principles to youth lending.

The two TeenPac members who took the easy way out and defaulted have learned a bad habit and won't be able to break it until their Fair-Isaac score suffers, and their cost of credit goes sky-high. But who can't afford to lose $200 on a program that doesn't cost anything and that does so much good?

TeenPac has forever changed the lives of the other 38 club members for the better. They've learned how to buy a car and how the cost of insurance affects its overall cost. They've started an investment club to make their retirement much easier to fund. They've learned how credit cards work, and how not to lall into the trap of revolving credit.

I know that Cory and his fellow TeenPac members have already acquired and put into practice more financial knowledge than most adults. That's a huge return on a $200 investment.

Kelly V. Schermerhorn

(kelly@harvestfcu.org) is president/CEO of Harvest Federal Credit Union, Heath, Ohio.

Copyright Credit Union National Association, Inc. Jan 2004
Provided by ProQuest Information and Learning Company. All rights Reserved