WASHINGTON (7/26/12)--The Credit Union QuickCash small loan program, which is offered at several Nebraska credit unions, provides consumers short-term, small amount loans (STS loans) at interest rates far below those charged by traditional payday lenders, Nebraska financial regulator John Munn told members of the U.S. House this week.
Munn, who serves as director of the Nebraska Department of Banking and Finance, testified during a Tuesday House Financial Services financial institutions and consumer credit subcommittee hearing in Washington, the Nebraska Credit Union League (NCUL) reported in a recent press release. The credit union QuickCash loans allow consumers to borrow $500 at an annual percentage rate of 18%, Munn noted. Loans must be repaid within 60 days, and there is no credit report requirement.
The QuickCash loan program was created last fall, and tested in some markets, by a group of six Lincoln, Neb., credit unions, the NCUL release noted. QuickCash loans are now offered throughout the state. NCUL President/CEO Scott Sullivan following the hearing said the league is proud that Nebraska credit unions can provide their members "with the short-term funds that they need at a reasonable cost and in a way that does not lead the member into a cycle of debt."
The Tuesday subcommittee hearing, entitled "Examining Consumer Credit Access Concerns, New Products and Federal Regulations," focused on the Consumer Credit Access, Innovation, and Modernization Act (H.R. 6139). That bill would create a federal charter for payday lenders and make those lenders subject to Office of the Comptroller of the Currency oversight.
Munn during the hearing said payday lenders did not need to be federally chartered. Regulation of payday lenders would be better left to state authorities, he said.
A recent Pew Charitable Trusts study found that 5.5% of American adults have taken out a payday loan in the last five years. Overall, 12 million borrowers spend approximately $7.4 billion on payday loans each year, Pew said. On average, borrowers take out eight loans of $375 per year. These borrowers pay $520 in interest on these loans, Pew reported.
The effective interest rate charged on some payday loans can be as high as 521% once the loan is paid off, according to the Pew survey.
Credit unions have several programs that offer short-term small-dollar loans at far more favorable terms. The National Credit Union Administration currently allows federal credit unions to offer short-term small amount loans to their members as an alternative to predatory payday loans that are offered by other financial service providers. Federal credit unions may charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. A $20 application fee may also be charged. The loans may total as high as $1,000 and may last for as long as six months, and the loans cannot be rolled over.
The Credit Union Better Choice program, which is sponsored by the Pennsylvania Credit Union Association in partnership with the Pennsylvania Treasury Department and the Pennsylvania Department of Banking, offers 90-day loans at an 18% APR. Financial counseling is also offered as part of the program.
Other small loans are offered by credit union through REAL Solutions, the signature program of the National Credit Union Foundation.