Tuesday, June 7, 2011

CU Payday Loans: Putting Profits Ahead of People?

An investigative article published in the Washington Post on May 27 about credit unions offering payday loans raises doubts about the credit union industry's claim that "credit unions put people ahead of profits."

The investigatative article found that at least 15 credit unions are offering high-cost loans that closely resemble traditional payday loans, including Mountain America FCU in Salt Lake City (see image) and Kinecta FCU in Manhattan Beach (CA).

The article cites the case of Sam Heredia who borrowed $400 every two weeks for the past year from Nix Check Cashing, a subsidiary of Kinecta FCU. This means that Heredia paid $1000 in interest and fees over that year on $400 that was revolved every two weeks. Nix charged Heredia an application fee each time the loan was renewed.

Thomas Glatt, a credit union industry consultant, is quoted as saying:

"Not every credit union is as pure as they could be. If they are offering something similar to what is sold on the street corner, you have to wonder if that is keeping with the credit union philosophy."


While there are credit unions that are responsibly offering payday loan alternatives, it is clear that some credit unions are putting profits first.

Read the Washington Post article.

A longer version of the article appears on the iwatch news website.

7 comments:

  1. Wonder what Mr. Heredia would have paid if the credit union option was not available to him. Go CREDIT UNIONS!

    ReplyDelete
  2. anonymous...your comment says it all. as long as its a cu, its ok. missing the point completely.

    ReplyDelete
  3. I believe your point was credit unions are acting outside what you consider their realm. My point is that credit unions are here to serve the membership. If a particular credit unions field of membership relies heavily on payday lenders, then should the credit union offer an alternative? That is a business decision. The benefit is for the members at large; the business stays solid, the membership has an alternative to "sharks". As I said GO CREDIT UNIONS!

    ReplyDelete
  4. How is a FCU supposed to cover its costs with an 18% interest rate cap? Look at $400 for 14 days at 18%APR. How much is that to the FCU? $2.76 to cover the processing and maintence of the loan. What about banks who charge 30.24% on their credit cards with a $49 annual fee? Is that a bank or a loan shark?

    ReplyDelete
  5. This is the end for the good reputation that Credit Union's have had over the years. This is just pure greed now infesting some Credit Union people. The military is protected with a max. rate of 37%. This should be extended to all. We will constantly have financial problems if such things as this payday lending to Credit Unions is allowed.

    ReplyDelete
  6. Anything a CU gets through a revenue stream covers its costs and goes BACK TO THE MEMBER in the form of BETTER RATES, BETTER SERVICES and BETTER DIVIDENDS. There is no such thing as profit, that is the nature of organizational structure of a Credit Union. If banks want to be like credit unions and give back to their customers, then get rid of your profits, paid boards, etc. Good luck with that.

    ReplyDelete
  7. How will you know if that credit union is putting high interest rate? What are the average APR that should take note if we will be applying for a loan through the credit union?

    ReplyDelete

 

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.