The NCUA has taken a bold step in these times of debt aversion. Proposing loans from $200 to $1000 and upping the maximum a Federal Credit Union could charge from 18% to 28%. All of this is open to a 60 comment period.
The loans could be for a minimum of one month and a maximum of six months. The member couldn’t have more than one such loan from any one credit union at the same time.
Payday lending is big business, and the APR that people pay is egregious. So does this serve a niche in the marketplace? Will this be the shot in the arm that Credit Unions need to increase revenues in a down market? Currently 352 federal credit unions offer alternatives to payday loans with a principal of less than $500. There also would be a $20 application fee for members.
This brings up a few questions.
- What would the fee cost?
- How would fees be charged?
- Could they be charged multiple times?
- How would you determine if a member has more than one loan?
- At what point would they be considered delinquent?
- What is the performance history of the current credit unions that offer this type of loan?
Many payday lenders advertise lower Apr’s, but when you factor in application fee, interest rate, delinquent fees, what will the true percentage be? How will NCUA calculate this percentage? Most people who have taken out payday loans are still paying.
It’s a viscous debt cycle, would credit unions be better served in educating their members, and helping them with budgeting and debt counseling?
There are many payday lenders across the US, the matrix below is a breakdown.
|STATE||Number of Payday Lenders||RANK|
|Iowa (corrupt data?)||412||19|