Jul 25 2014

Lower Interest for Timeliness (LIFT) Pilot: Final Report


Lenders have always relied on financial punishment and penalties to ensure borrowers repay their loans on time. Rarely do we ever see borrowers being rewarded for responsible and timely repayment. In 2011 an i³ group sought to explore this issue. The result was LIFT: a product concept designed to lower interest rates for borrowers as they make timely payments. 

LIFT (Lower Interest for Timeliness) is a loan feature that gives borrowers an opportunity to earn more affordable credit. To that end, credit unions can leverage these types of features and programs to drive down delinquency - which will also enhance member satisfaction. After the i³ group pilot tested LIFT and collected data, they were encouraged with the preliminary findings. However, in order to determine LIFT's potential for larger-scale adoption, further market testing was required. 

Thanks to a generous grant from the Center for Financial Services Innovation, Filene was able to build and test LIFT with five credit unions and over 1,000 low-moderate- income consumers with subprime credit scores. LIFT was applied to automobile loans since credit unions generate high volumes of these types of loans. As part of the market test, the LIFT feature rewarded consumers who made three consecutive on-time payments with a 25-basis-point loan pricing reduction. Within the report, a team of researchers from the University of Wisconsin-Madison present detailed insights and results from this market pilot. 

The researchers conclude that the LIFT pilot proves borrowers do respond to positive incentives for on-time payments. The report also highlights the impact LIFT had on late fees, late-payments, and defaults. Filene would like to share these insights with your credit union as you continue to build programs and services that will satisfy your members' needs

Report Number 335