Letter: Payday Assault by NCUA Will Not End Well
Credit Union Times’ recent report about a letter sent by NCUA Board Chairman Debbie Matz to the National Consumer Law Center and the Center for Responsible Lending led me to question the agency’s priorities. I continue to be puzzled by why the NCUA, and especially Matz, expends so much energy on a credit union business practice that isn’t even a blip on the credit union lending radar screen. Although it was certainly appropriate for the NCUA chairman to respond to these strident consumer activist organizations’ complaints, combating payday lending, contrary to what the chairman implies, is not mandated by the Federal Credit Union Act and has very little to do with safety and soundness.
When one looks at the bigger picture, the NCUA’s short-term small amount loan program has accomplished diddly-squat. Any suggestion that credit union payday loan alternative lending can replace the conventional store-front retail or Internet payday loan industries is at best disingenuous and at worst blatant political pandering. Although each credit union member who got a cheaper short-term loan from a credit union was helped, the math suggests that just not that many consumers out of the nearly 52 million total members of federally chartered credit unions have benefited. When compared to the entire multibillion dollar payday loan industry, the credit union involvement is not even a drop in the bucket.
Payday lending accounts for less than one-one hundredth of one percent of federally charter credit unions’ loan portfolios. I wonder how the chairman calculated the numbers that gave her the confidence to state that the program “has saved consumers millions of dollars.” How was that savings measured and how detailed was the data?
Chairman Matz also advised the anti-payday loan activists that “Our ultimate goal is to empower borrowers to break free of their reliance on payday loans by improving their credit scores and qualifying them for lower-priced financial services.” I’m not sure who the chairman is including in “our,” and I don’t recall reading about this in the NCUA’s 2013 annual performance plan that established NCUA’s priorities. The agency’s focus on payday lending alternatives would be considered by many within the credit union industry to be a waste of limited resources.
Chairman Matz also advised the activist groups that the NCUA has initiated inquiries into the nine federal credit unions the activists identified as offering high-priced, short-term loans. In doing so Chairman Matz misguidedly dissed Xtra Cash LLC, a CUSO that makes payday loans to credit union members. The chairman went out of her way to advise the activists that NCUA doesn’t examine CUSOs–something that the NCUA sorely wants to do despite the lack of statutory authority.
She also advised that, “I believe NCUA has made progress in the fight against predatory lending, but we recognize our work is not yet done.” The two ideologically-entrenched activist groups believe that all payday loans, including those made by credit unions, are by definition predatory. They are urging the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp. and the Comptroller of the Currency to stomp down hard on this financial product. It would appear that the NCUA is about to join these other regulators on the activist groups’ credit-restricting bandwagon. While that would have little impact on the credit union industry, it would certainly drive payday loan borrowers to higher cost alternatives. This NCUA pandering to whining activist groups will not end well.
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