Jamie Fulmer, vice president of public affairs for payday lenderAdvance America, says he welcomes the opportunity to work with theConsumer Financial Protection Bureau, because consistentdisclosures would allow his product to be measured by the samemetrics as competing short-term credit union loans.

While Fulmer admitted credit unions typically charge a lowerannual percentage rate for their short-term credit products, hesaid the cooperatives often also charge application fees that driveup the total cost as high as, or even higher than what AdvanceAmerica charges.

“It’s easy to criticize a product on its face, but this is whereI think the bureau can help,” Fulmer said. “To make sure that youare comparing products on an apples-to-apples basis, because that’swhere the real rubber meets the road. If our product is moreexpensive, the consumer ought to know that, but if we are beingmeasured using different metrics, it’s misleading.”

Concerned that consumers in need of short-term financing werebeing denied by traditional financial institutions – includingcredit unions – the financial cooperatives began offering payday loans. At first, CUSOs like Credit Union OutreachSolutions Inc. introduced payday lending, providing expertise inthe way of disclosures and underwriting standards, and in CUOSI’scase, setting up a fund to cover defaults. However, as paydaylending has evolved into a mainstream product, more credit unionsare choosing to provide their own in-house payday lendingsolutions; so much so, that CUOSI said it will discontinueoperations next year.

Ultimately, Fulmer said consumers don’t care whether they’rebeing charged APR or fees; instead, they care about “how much theyhave to reach into their pocket to pay for one option overanother.” Of course, that depends upon how many times the consumerreaches into his or her pocket. Bill Burke, president/CEO of the$260 million Day Air Credit Union, said his research has shown thatif a borrower doesn’t turn over a payday loan, Fulmer’s claim mayhave some validity. Burke is chairman of CUOSI which offers paydayalternative Stretch Pay loans with nearly 50 credit unionpartners.

“All of our analysis has shown that our financial model ofStretch Pay has resulted in incredible savings compared to atypical payday lender’s model based on $15 for every $100 borrowed,said the CEO of the Dayton, Ohio-based Day Air CU. “I can’t believethat a payday lender would have a financial model superior to thatof credit unions from a cost of credit comparison.”

Burke also said the CFPB has its work cut out for it because itwill be difficult to develop an apples-to-apples comparison forpayday lending products due to the ability to roll over theloans.

Credit union lending options may be the best for many consumersbut there cost or disclosures may not be as important. For example,a consumer may not want to fulfill a credit union’s membershiprequirement in order to gain access to a short term loan. Access tocredit is another factor. Burke said he originally began developingStretch Pay after attending a city council meeting in Dayton morethan 10 years ago, when a council member was attempting to regulatepayday lenders within city limits. Burke was shocked to hear somany people speak out in favor of payday lenders, saying they weretheir only source of credit.

“One person after another would say, ‘the payday lenders are allwe have, because when we go to the bank, they put us through hoopsand then turn us down anyway,’” Burke said.

A city council member asked the audience about credit unions,and Burke said he was shaken to hear that credit unions were alsoturning down those who needed short-term credit.

“I thought, ‘gosh what can we do, because I didn’t like to hearthat,’” Burke said. “What a horrible perception for credit unions,and that’s why we developed a payday lending alternative.”

Payday lenders are already regulated in most states, includingthe 29 states in which Advance America operates. State regulatorsperform audits and monitor business practices. Payday lenders arealso subject to the same federal regulations that credit unions must comply with, like Truth in Lendingdisclosures, Fair Lending laws, and regulations that protectservice members.

“I think there is a belief that somehow the regulated paydaylending industry is not interested in operating in a regulatoryenvironment,” Fulmer said. “But we think regulations provideprotections for consumers that seek the short term credit we offer,and that’s good for consumers and the companies that are providinga safe product.”

Fulmer said he doesn’t know what kind of proposed regulationsmay come from CFPB, including whether or not the agency willconduct annual exams at payday lenders as most state regulatorsalready do. Still, the bureau has engaged with payday lenders forthe purposes of researching how the product relates to consumersand put out a supervisory manual.

“I haven’t heard of any specific action they are looking to moveon,” Fulmer said, “I think if you listen to what they say, theyhave been very vocal in being clear that they’re not looking to bedictators in the market, not trying to pick winners and losers inthe market, but they are interested in fostering an environment ofhelping consumers avoid tricks and traps.”

Despite the downturn of the economy, business at Advance Americahas remained relatively flat, Fulmer said. The payday lenderextended $4 billion in credit last year to 1.5 million customers,which is consistent with the company’s last three years’ worth ofbusiness.

“We think our products compete favorably with all the optionsavailable to consumers for small denomination short term credit,and will remain a part of that mainstream for years to come,”Fulmer said.

Burke said the CUOSI board decided last year to disband becausecredit unions are now comfortable offering their own in-housepayday lending solution.

“Our original purpose was to show credit unions it’s not thathard and there is a value proposition for the market.”