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In the next few months, the CFPB will propose new payday loan rules that build on the bureau’s initial framework. Those rules will provide a much-needed response to many of the deficiencies in the payday loan market, which will benefit the consumers who currently use these loans. But the CFPB also should ensure the new rules help credit unions provide better small loan alternatives.

More than 100 million payday loans are issued annually, typically at rates between 300% and 500% APR. This is a large market that credit unions could serve better than payday lenders do, and at far lower cost to borrowers. Today, credit unions do help members facing financial hardship through programs that encourage saving and increase financial literacy. But when these individuals and families are struggling to make ends meet, they often look for immediate financial assistance. So payday lenders step in with an offer that some folks can’t refuse: A loan averaging $375 with an appealing fixed fee, usually provided in less time than it takes to have a pizza delivered.

Payday loans often turn into months-long ordeals that cost consumers more in fees than they receive in credit. But on the front end, speed and ready access to credit are major selling points of payday loans. Seven in 10 customers report focusing primarily on speed or convenience, as opposed to cost, when choosing where to borrow. So, to entice members to use lower-cost, more reasonably structured installment options, credit unions will need to issue small loans much more quickly.

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