WASHINGTON (6/5/12)--Noting that the Federal Deposit Insurance Corp. (FDIC) is planning to investigate banks that offer payday loan products, Credit Union National Association General Counsel Eric Richard said credit unions offering similar products can guard against regulatory intrusion on similar products by ensuring that their programs are clearly distinguishable from others by virtue of their member-friendly features.
The Minneapolis Star Tribune recently reported the FDIC is concerned by news that banks are taking advantage of lower-income borrowers with questionable payday loan practices. Around 250 pro-consumer groups wrote the FDIC earlier this year, asking the regulator to prevent big banks "from trapping their customers in long-term debt at 400 percent annual interest," the Star Tribune said.
FDIC spokesman Andrew Gray told the Star Tribune his agency has "long-standing guidance related to payday lending and has encouraged banks to offer small dollar short-term loans on a responsible basis."
Most credit unions offering payday loan alternatives appear to have included interest rate restrictions, limited fees, member financial counseling, or other positive features of credit union short-term small amount loans, Richard said. Many credit union programs also encourage members to open savings accounts and provide incentives for members that switch to longer-term and lower-cost lending products, he added.
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.