Payday loans coming to a Credit Union near you

Posted: May 11, 2010 in Payday Lending
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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.

  1. What would the fee cost?
  2. How would fees be charged?
  3. Could they be charged multiple times?
  4. How would you determine if a member has more than one loan?
  5. At what point would they be considered delinquent?
  6. 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
Alabama 1,177 4
Alaska 22 33
Arizona 726 11
Arkansas 275 23
California 2,451 1
Colorado 577 15
Connecticut 42
Delaware 82 31
Florida 1,164 14
Georgia 48
Hawaii 26 38
Idaho 196 24
Illinois 727 27
Indiana 117 44
Iowa (corrupt data?) 412 19
(in dispute)
Kansas 100 37
Kentucky 707 12
Louisiana 1,009 7
Maine 6 39
Maryland 47
Massachusetts 45
Michigan 650 26
Minnesota 55 43
Mississippi 1,100 3
Missouri 1,257 5
Montana 104 28
Nebraska 57 34
Nevada 256 25
New Hampshire 77 32
New Jersey 46
New Mexico 760 10
New York 50
North Carolina 49
North Dakota 76 29
Ohio 1,374 8
Oklahoma 397 21
Oregon 453 18
Pennsylvania 400 41
Rhode Island 5 36
South Carolina 902 9
South Dakota 302 20
Tennessee 1,344 2
Texas 1,675 6
Utah 427 17
Vermont 35
Virginia 743 16
Washington 713 13
West Virginia 40
Wisconsin 439 22
Wyoming 77 30
Total 23,417
Average 468
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