Payday Lending CUSO Says it Offers Valuable Service
XtraCash, a CUSO which enables credit unions to offer short-term loans to compete with storefront payday lenders, argues that it provides credit unions and their members a money-saving service.
Five of the CUSO's federal credit union clients were singled out for criticism for payday lending on May 16 in a letter to the NCUA from the National Consumer Law Center and Center for Responsible Lending.
The CUSO, which is owned by CU Holding Company LLC and that, in turn, by the $495 million Mazuma Credit Union in Kansas City, Mo., was not named in the letter but cited by credit union clients contacted about the letter by Credit Union Times.
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Asa Groves, XtraCash’s general manager, stressed that the CUSO and its roughly 10 credit union clients see the payday loans as a service to both the credit union members and the credit unions themselves.
“While the interest rates are higher than the 18% or 28% that NCUA allows,” Groves said, “they are far less expensive than storefront payday lenders.”
Although the fees vary from state to state, Groves said in Florida the fee comes in at between $8 and $9 for every $100 borrowed, compared to significantly higher fees at the other payday lenders.
Groves also stressed that the loans help members meet emergency financial needs and that the CUSO makes the loans in a far more responsible way than do storefront payday firms.
For example, the CUSO does not allow a borrower to have more than one loan open with them at a time and puts borrowers through additional scrutiny who seek to take out one of their loans while having other payday loans open with other lenders in states that allow the practice.
“Florida doesn't even allow a borrower to have more than one open loan at a time,” Groves said, “and we check.”
Groves also pointed out that if credit unions were to try to offer these sorts of short-term loans under the existing guidelines from NCUA, they would not be able to offer them without losing money.
“The other credit union members are going to have to subsidize that,” he pointed out.
Further, Groves noted that his CUSO and its credit union clients are not the only ones engaged in this type of high-cost lending. Compare the CUSO's fees and interest to those consumers pay on a bounced check and the payday loan becomes far less expensive, he observed.
“A $48 NSF & merchant fee on a $100 NSF check equals an APR or over 1,251%.” he said.
“A $50 late or reconnect fee on $100 utility bill equals an APR of 1,304%. And those represent real dollars,” he added. “Consumers pay with real dollars, not APRs.”