Non-Profit Credit Unions Dabbling in Payday LoansAround the United States over 500 Credit Unions have begun offering a variation of the much-maligned
payday loan. Operated as non-profit organizations, Credit Unions have always enjoyed a reputation as fair and honest banking institutions. While many credit union heads have stated that they have begun offering payday loans to give consumers a safe and trusted source for short-term credit, many wonder whether the move is prompted by greed or a need for self-preservation.
The
National Credit Union Administration has come to the conclusion that over 7% of their operations are likely to fail, and that most are losing money on traditional mortgage loans and personal loans. Meanwhile, the payday loan industry raked in a gaudy $7 billion in revenue last year, off a mere $40 million lent. Have credit unions identified payday advance loans as a way to stay in business while getting a piece of the cash advance pie?
Last year the NCUA approved an increase from 18% to 28% on the maximum allowed interest rate for payday loans. According to their guidelines, credit unions can also charge a $20 application fee. However, they can only extend customers three loans within a six-month period, and they must allow for an entire month for repayment.
Over the last several years, as politicians and activists groups have been campaigning against payday loans, almost twenty states have implemented 36% annual percentage rate caps on payday loans. Industry leaders, on the other hand, have clamored that these restrictions make lending unprofitable and are forcing many shops to close their doors.
Interestingly, the rates and fees that Credit Unions have deemed fair amount to a whopping 100% APR! A Credit Union in
Utah has even been offering five-day $100 dollar loans at a price of $12, equaling an APR of over 800%!
Apparently, credit union’s agree with payday loan lenders.