<p>Many years ago, the proliferation of vicious and unscrupulous loan sharks gave impetus to the formation of a new idea called credit unions. It wasn't long before these member-owned cooperatives began to replace the sharks as lenders of last resort. But the loan sharks never went completely away. They are now called predatory lenders or payday lenders. From a modest start, credit unions grew in numbers, members, assets, products, and services. What once was only an idea in the minds of early credit union pioneers, became a nationwide network of member-owned financial institutions. The rapid growth proved there was a need that credit unions could and were meeting. But something happened along the way as credit unions began to serve more consumers, including untold numbers of those who had been rejected by the banking industry. Despite being organized as not-for-profit financial cooperatives, as credit unions expanded, they found that they needed to end each year with a black bottom line. That meant that credit unions had an obligation to run a sound operation, or else cease to exist. If loan standards had to be tightened and the turn-down rate increased, so be it. After all, credit union leadership has a duty not to put member funds at an unacceptable level of risk. Remember the S&L industry? Today there are credit unions that, despite a lower than average loan-to-share ratio, have a loan rejection rate that hovers around 45% or higher. It is hard to imagine that these credit unions are viewed by all members as a lender of last resort. It appears that that distinction now belongs to the predatory and payday lenders. Why else would so many people, including CU members, be willing to pay such outlandish interest rates as 600% or more? When someone desperately needs a loan, even if only a modest amount to tide them over till pay day, or even a bit longer, what are their choices? A bank? Forget it. That's not the business they are in. A relative? Dream on. A credit union? Maybe yes. Maybe no. If a credit union can't help someone in need, what alternative do they have, but to run down the street and do business with the modern day loan shark? It is beginning to look like some credit unions may be helping the fantastic growth of the payday lending industry and helping to position them as the lender of last resort. If people desperately need financial help, they have to get it somewhere, even if that somewhere operates in a way that gouges them and gets them deeper in the debt cycle. A case in point: Recently I was talking to a female reservation agent at one of the major airlines, an airline served by one of the largest credit unions in the country. She has worked for the airline for four years and is a member of the credit union. Her father was a career employee at the same airline and is a long-time member of its credit union. She's a single mom who needed a car that would cost her about $11,000. She doesn't have the money so she applied to her CU for a loan. Because her husband walked out on her, she got in some financial trouble and tarnished a previous good credit rating. The airline credit union turned down her loan request. The car she needed was low end. She makes a decent salary. She has a good employment record. She would make payments via payroll deduction. No deal. Frustrated and desperate, she went to a predatory lender. She was greeted with open arms. And an interest rate that would shock credit union members. She took it. She felt she had no alternative. She feels her credit union let her down when she most needed it. How many similar stories are out there? Have some credit unions become so obsessed with capital ratios, delinquency levels, charge-offs, CAMEL ratings, and "profitability" that they now shy away from taking any risk, even moderate risk? Credit union leadership is leading the charge to stamp out predatory lending. That's good. Predatory lending is by definition an evil thing. It takes advantage of those who can least afford to be taken advantage of. It makes already desperate situations even more so. It takes away from disadvantaged folks any hope of ever crawling out of the vicious cycle of piling debt on top of debt. If credit unions play a role in getting the wild growth of the new loan sharks under control, that will be a great achievement. And they are trying. All across the country, credit unions support the growing number of legal and regulatory initiatives attempting to reign in these piranhas. In addition, a CUNA executive is active in a forum entitled, "The debt cycle: using payday loans to make ends meet" co-sponsored by the National Endowment for Financial Education and the Consumer Federation of America. The group is looking at developing programs that can give those who patronize payday lenders an alternative. Like credit unions for example? The irony here is that credit unions are helping to eliminate the one and only place to go for some people with serious financial problems. Then what will they do? It seems to me that credit unions need to find ways to once again become the lender of last resort and serve that huge market of people who have no place left to turn except unscrupulous lenders. The irony of all ironies is that many victims, like the airline employee above, get sucked into the trap created by predatory lenders because credit unions slam the door in their face. Surely today's credit unions can find ways to help meet the financial needs of those very members and potential members whom they are driving away and thereby sending to the booming payday and predatory lending industry? Any suggestions? Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected].</p>