Credit Unions Generally Not Becoming Payday Lenders, Despite Claims
ARLINGTON, Va. - So, how many credit unions have started to offer payday alternative loan products after all? It turns out, maybe not that many. Despite studies which have indicated that offering payday loan alternatives can be a practical and profitable service for credit unions to offer, and despite the...
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ARLINGTON, Va. – So, how many credit unions have started to offer payday alternative loan products after all? It turns out, maybe not that many. Despite studies which have indicated that offering payday loan alternatives can be a practical and profitable service for credit unions to offer, and despite the examples of two large credit unions which started offering the product with some publicity, in general credit unions have not rushed to offer the low denomination loans. Last week the Community Financial Services Association, a payday association for payday lenders, announced that it had hired a public relations firm to help press the case that other types of products and institutions are getting involved in its business without sometimes acknowledging that they are doing so. But a survey of the credit unions that the association cited indicates that while some credit unions have started offering the product and many more are interested, there are a number of them that have started offering the alternative and then backed away. In addition to the credit unions with established payday loan alternative products like the $11 billion State Employees Credit Union, headquartered in Raleigh, the $1 billion Washington State Employees Credit Union headquartered in Olympia, Washington, and the $181 million ASI FCU headquartered in Harahan, Louisiana, the CFSA cited four other credit unions that, it said, had started payday loan programs. But two of the credit unions cited told Credit Union Times that they had discontinued the programs. The $108 million Patriots FCU, headquartered in Aliso Viejo, California, confirmed that it had a program but had no one available to discuss why they had decided to discontinue it. The $789 million Landmark Credit Union, based in New Berlin, Wisconsin, also had a program but decided to discontinue it when an overdraft protection program became more popular. Pat Ransom, vice president of marketing for the credit union said that the payday loan program never quite had the popularity that the credit union thought it would have and not nearly the popularity that the overdraft protection product has had. “I think there were a couple of things working against the payday loan product,” Ransom explained. “I think people didn’t like the length of time to repay the loan and they didn’t like the requirement to start a special savings account.” Ransom explained that the payday loans were to be paid off over a year, although members could them off more quickly. The program also carried the requirement of a savings deposit for the loans. By contrast the overdraft protection program, provided by a vender that Ransom declined to name, allows a member to borrow up to $500 provided they bring their checking account back to zero once in 30 days. The overdraft protection is also cheaper, since the member pays a $20 overdraft charge per check instead of the $10 or $15 per $100 borrowed which payday lenders often charge. The charge will jump to $21.00 on May 17, Ransom said. Landmark has only had the overdraft protection program since mid-February, but Ransom reported that her members love it. “They are just looking for something to help tide them over until the next payday,” she noted. “Something easy to use.” Even members of the two credit unions still offering the program are not wildly enthusiastic about it. Roxanne Law, chief operations officer for the $152 million King County Credit Union, headquartered in Seattle, called her credit union’s payday loan program “unpopular,” possibly because the credit union will only make the loans between $100 and $300. A borrower can also not have bounced a check for the previous 90 days and, she pointed out, that can seem to limit the program for the very people who are most likely to need it. Still, Bruce Cramer, CEO of the $107 million O Bee Credit Union, headquartered in Tumwater, Washington, said his credit union would expand its Operation Set Free program even though only 34 of its 13,000 members have used it. Under Operation Set Free, a credit union member can approach the credit union for a one time loan for the entire amount that the member might owe a payday lender. The interest rate is 18% and the loan can be paid off over eight paydays. Cramer said the credit union is contemplating expanding to another program which will mimic the traditional payday loan more closely. Billy Webster, immediate past president of the CFSA and CEO of Advance America, the largest payday lender, said that the point is not how many credit unions are really getting involved in the business, but that there are credit unions trying to keep his association’s members out. “Like I said before, I welcome the competition and believe if credit unions see a need in this space they ought to seek to fill it, but not to prevent others from being in the business as well,” Webster said. But there is an edge to the competition between the payday lenders and credit unions which will not likely disappear anytime soon. A recent story in the Seattle Times which focused on WSECU’s new payday loan alternative product highlighted two credit union members who said the credit union’s product had rescued them from the real financial trouble they had gotten in by using payday loans. -
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