The National Consumer Law Center and the Center for Responsible Lending said this week that nine federal credit unions in five states continue to offer members payday loans with triple-digit interest rates.
The Center for Responsible Lending is a subsidiary of the 49,000-member, $590 million Self Help Credit Union, headquartered in Durham, N.C.
The credit unions range in size from $5.9 million to $3.3 billion in assets.
The allegations came in a letter Thursday to NCUA Board Chairman Debbie Matz that brought up to date a report that NCLC prepared on what it called credit union payday lending in 2010
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Since then, the letter noted that 52 of the 58 credit unions that had been identified in 2010 have left the business and praised large numbers of credit unions that have found innovative and creative ways to help meet their members' needs for small short term loans.
“But a few persist, and others have entered the business,” the letter read.
- Tri-Rivers FCU, Montgomery, Ala., $18.6 million
- Kinecta FCU, Manhattan Beach, Calif., $3.3 billion
- Buckeye Community FCU, Perry, Fla., $74 million
- Martin FCU, Orlando, Fla., $108 million
- Orlando FCU, Orlando, Fla., $181 million
- Railroad & Industrial FCU, Tampa, Fla., $276 million
- Tallahassee FCU, Tallahassee, Fla., $5.9 million
- Louisiana FCU, La Place, La., $174 million
- Clackamas FCU, Oregon City, Ore., $250 million
The letter singled out Kinecta for special mention, noting that it is the largest FCU to offer the loans through its check cashing subsidiary.
“The largest credit union making payday loans of which we are aware is Kinecta Federal Credit Union in California, which has been directly offering payday loans at its Nix Check Cashing locations. Kinecta discloses a 15% APR for its two-week loans, but it adds an ‘application fee’ on each loan that brings the true APR on a $400 loan to 223%. Kinecta may not legally charge more than 18% APR. Other credit unions use a similar ruse,” the NCLC and CRL wrote.
They also mentioned credit unions partnering with CUSOs to do the same thing and avoid the loan cap, the organizations charged.
They also observed that the NCUA is alone among federal financial regulators not to have done anything on the topic recently.
“All four federal bank regulators acted last month to address payday lending by financial institutions,” they wrote, adding: “The credit union loans we have identified have all of the same hallmarks of predatory lending as do traditional payday loans and bank deposit advance products.
“In 2001, NCUA warned credit unions that payday loans 'normally have high fees, are rolled over frequently and can result in offensive lending practices.' Yet the NCUA’s 12-year old letter has not stopped a handful of credit unions from offering abusive payday loans to their members. More needs to be done.”
John Neusaenger, CEO of Orlando FCU, said his credit union offers the loans to help keep members away from other payday lenders.
“It is also worth noting that Florida has very strict rules constraining payday lending,” Neusaenger wrote in an email response to questions. “Borrowers may only have one payday loan outstanding from a Florida payday lender at one time. The borrower must pay off the one loan 48 hours before obtaining another loan. Florida maintains a database, via a contractor, to monitor this activity. These constraints offer some assurance that Florida payday borrowers will not end up as deep into the payday lending cycle as other states allow their citizens.”
Orlando FCU offered the loans to have an opportunity to move members away from the payday loan cycle and into more traditional, lower cost credit union consumer loans, Neusaenger explained.
“We know some of our members are using payday loan products to get from one pay period to the next but the demographics of the average payday borrower is not what the media typically portray,” he added.
The letter reiterated its call to the NCUA to ban the products.
"NCUA has clear authority to stop predatory lending by credit unions," the letter concluded. "When manipulation of the APR by federal credit unions (FCUs) is the problem, NCUA should use its authority under the Federal Credit Union Act and the Federal Trade Commission Act to forbid FCUs from evading theFCUA 18% usury cap by charging fees that vastly outstrip the finance charge and that manipulate the APR.
"When FCUs offer their name to CUSOs, NCUA should tighten up its finder’s fee rule to ensure that FCUs are not incurring third-party risk and profiting off of loans that are illegal for them to make directly."