XtraCash, a CUSO which enables credit unions to offer short-termloans to compete with storefront payday lenders, argues that itprovides credit unions and their members a money-savingservice.

Five of the CUSO's federal credit union clients were singled outfor criticism for payday lending on May 16 in a letter to the NCUAfrom the National Consumer Law Center and Center for ResponsibleLending.

The CUSO, which is owned by CU Holding Company LLC and that, inturn, by the $495 million Mazuma Credit Union in Kansas City, Mo.,was not named in the letter but cited by credit union clientscontacted about the letter by Credit Union Times.

Also Read:

• NCUA Sent Complaint About Payday Lending CUs
• Credit Union CEO Defends LoanProgram
• NCUA Promises Probe of XtraCash Clients

Asa Groves, XtraCash's general manager, stressed that the CUSOand its roughly 10 credit union clients see the payday loans as aservice to both the credit union members and the credit unionsthemselves.

“While the interest rates are higher than the 18% or 28% thatNCUA allows,” Groves said, “they are far less expensive thanstorefront payday lenders.”

Although the fees vary from state to state, Groves said inFlorida the fee comes in at between $8 and $9 for every $100borrowed, compared to significantly higher fees at the other paydaylenders.

Groves also stressed that the loans help members meet emergencyfinancial needs and that the CUSO makes the loans in a far moreresponsible way than do storefront payday firms.

For example, the CUSO does not allow a borrower to have morethan one loan open with them at a time and puts borrowers throughadditional scrutiny who seek to take out one of their loans whilehaving other payday loans open with other lenders in states thatallow the practice.

“Florida doesn't even allow a borrower to have more than oneopen loan at a time,” Groves said, “and we check.”

Groves also pointed out that if credit unions were to try tooffer these sorts of short-term loans under the existing guidelinesfrom NCUA, they would not be able to offer them without losingmoney.

“The other credit union members are going to have to subsidizethat,” he pointed out.

Further, Groves noted that his CUSO and its credit union clientsare not the only ones engaged in this type of high-costlending. Compare the CUSO's fees and interest to thoseconsumers pay on a bounced check and the payday loan becomes farless expensive, he observed.

“A $48 NSF & merchant fee on a $100 NSF check equals an APRor over 1,251%.” he said.

“A $50 late or reconnect fee on $100 utility bill equals an APRof 1,304%. And those represent real dollars,” he added. “Consumerspay with real dollars, not APRs.”