A very interesting post appeared in the “The Cutting Edge” regarding credit unions and the payday loan industry. We’ve written before about credit union companies – “Payday Loans and the Hypocrisy of Their Competitors” . Under the guise of helping their credit union members, credit unions have been tip toeing around payday loan type products for years.
WE DON’T HAVE A PROBLEM WITH THIS. Our only complaint is the hypocrisy surrounding their products.
From The Cutting Edge:
But encouraged by federal regulators, an increasing number of credit unions are competing directly with traditional payday lenders, selling small loans at prices far higher than they are permitted to charge for any other product.
Last September, the National Credit Union Administration raised the annual interest rate cap to 28 percent from 18 percent for credit unions that offer payday loans that follow certain guidelines.
Under this voluntary program, credit unions must allow at least one month to repay, and cannot make more than three of these loans to a single borrower in a six-month period. Credit unions are not allowed to roll over the loans, a practice that typical payday lenders use to make big profits.
But because these firms can charge a $20 application fee for each new loan, the cost to borrow $200 for two months often translates into an annual interest rate of more than 100 percent.
What’s more, many credit unions prefer to sell loans outside the federal program, allowing them to charge significantly more in fees.
At Mountain America Federal Credit Union in Utah, a five-day $100 “MyInstaCash” loan costs $12, which works out to an 876 percent annual interest rate. That rate rivals traditional storefront payday lenders.
An investigation found 15 credit unions like Mountain America that continue to offer high-cost loans that closely resemble the payday loans they are meant to replace.
“They are promoting these loans as payday alternatives, but they are not really alternatives, they are egregious payday products,” said Linda Hilton, a community activist in Salt Lake City. “We look at it as a moral lapse of credit unions.”
All told, more than 500 credit unions are making payday loans with widely varying interest rates—from a modest 12 percent with no fees at State Employees’ Credit Union in North Carolina to the high triple-digits loans sold by Mountain America. It has become a fast-growing trend in an industry struggling to remake itself after the financial crisis.
Read the entire “Cutting Edge” article here.