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RALEIGH, N.C. – Credit unions have been called to task by a credit union leader for being “indifferent” about predatory lending practices. “We’re not doing much about it,” said Jim Blaine, president and chief executive officer of State Employees Credit Union (SECU) in North Carolina. “We’re indifferent it seems as community consumer-based organizations to this problem.” Blaine singled out for criticism sub-prime mortgage loans and payday/check-cashing services. Speaking on the issue at the annual meeting and convention of the California and Nevada Credit Union Leagues, Blaine said, “You’ll find very few credit unions that are out trying to help change these two problems. “As consumer-based organizations, we owe it to our members to try to educate them to what’s going on in the world so they can get an even break,” he said. Blaine described predatory lending as “stealing from your members and killing them in the process.” He said that when it comes to sub-prime mortgage loans, there is more concern about how much money can be made than whether the loan is in the best interest of the borrower. “The most amazing thing about predatory mortgage lending is quite often it’s done without any regard to whether or not the borrower can repay the loan,” he said. “Sub-prime loans steal the earnings capacity of our members,” Blaine said. “We steal their livelihood from them when we make sub-prime loans.” He said such loans include excessive fees and excessive points and that 80% of them contain prepayment penalties. Loans with balloon payments are designed to make them look more competitive, he said, but they are actually “a way of enticing members into a bad loan decision.” “If you look at a sub-prime or predatory mortgage loan these days you’ll find all kinds of junk fees,” he said. “There are a lot of fees added on to the sub-prime loans that are not justified under any sense.” By offering such loans, financial institutions are putting safety and soundness at risk, he contended. Those loans, he said, at some point would “drag an institution down.” “The ultimate is you get borrowers in over their heads in loans they cannot afford to pay,” Blaine said, adding the result was often foreclosure or bankruptcy. Such predatory practices also give a black eye to credit unions who are viewed as doing more to hurt a community than help it, he said. “Stop doing it,” he advised. Among provisions he would like to see implemented into law to protect borrowers are no prepayment penalties on low-end mortgages, no flipping (“You have to demonstrate there is an advantage to the consumer in refinancing a loan,” he said), no balloon payments and no negative amortization. He also said upfront fees should not be allowed to be financed. “If the consumer is forced to come across with a check (for the upfront fees), they won’t put up with it,” he said. “As long as you take it out of the proceeds, these lenders can always get away with it.” Blaine also called for a consumer credit counselor or impartial third party to be involved in the lending process to ensure that the loan was fair. Blaine also said credit unions needed to stay informed about abusive lending practices and ways to assist their members. He suggested organizations such as the National Credit Union Foundation, Balance (www.balancepro.net) and the Center for Responsible Lending (www.responsiblelending.org). “You and I are the dispensers of the number one drug in the world,” he said, referring to money. “If you’re going to do that for your members, you ought to have a cure on the other end.” He called payday lending, with annual percentage rates that can be as high as 475%, “a death trap” for borrowers. “You’re better to let your mortgage be late, your car payment be late, than to ever go to a payday lender to try to keep up,” he said. “It is that bad of a practice.” He noted that it would be less expensive for someone to write a bad check and then pay the check fees than to borrow from a payday lender. The same, he said, applied to credit card debt, suggesting that people would be better off by being delinquent on their card payment rather than owing a payday lender. Blaine suggested that credit unions that don’t already offer overdraft protection for members implement such a program. “Give the member the chance of making a small overdraft loan at your credit union for a week or so,” he said, pointing out that such a practice would create goodwill. “You can charge 18 percent and make a heck of a lot of money. Your losses will be very low,” Blaine added. Failing that, he advised credit unions to recommend a finance company to members who might otherwise go to a payday lender. Finance companies typically charge 36%, he said, which he noted is still substantially less than the APR charged by payday lenders. Blaine said payday lenders were able to flourish because there was little competition from others in the financial sector, including credit unions. “The fees are huge,” he noted. “If your bottom line is hurting at all, this particular service is one of the most profitable services you can offer to your members.” Providing such services to members helps build strong relationships, he added. “Maybe we’ve gotten so sophisticated that we don’t want to get our hands dirty with poor folks anymore, but they do buy cars, and they are trying to buy homes and they are trying to send their kids to college. And, oh, by the way, that’s what we were created to do, although sometimes I think we’ve forgotten,” Blaine said. -

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