ALEXANDRIA, Va. (6/7/13)--The National Credit Union Administration will "aggressively pursue" institutions offering payday loans that do not meet agency-set standards, and will "continue to encourage credit unions to offer products that result in lower costs to credit union members," NCUA Chairman Debbie Matz wrote in a Thursday letter.
Matz's comments are in response to a National Consumer Law Center (NCLC)/Center for Responsible Lending (CRL) letter on federal credit union payday loan practices. That letter identified nine credit unions as offering "high-priced" short term loans. The letter also noted the positive work that many credit unions perform by offering reduced-rate short term loans.
"Credit unions work hard to develop programs that help their members. As NCUA notes, the number of credit unions that the NCLC is citing has decreased from 58 in 2010 to a very small number in its most recent letter to the agency," CUNA Deputy General Counsel Mary Dunn said. "Meanwhile, CUNA's consumer protection subcommittee plans to review its best practices in this area and on related issues," she added.
In the agency's response to the NCLC/CRL letter, Matz said that five of the nine credit unions identified by the NCLC and CRL are not making payday loans directly, but are referring their members to a third party, Xtra Cash LLC. The other four credit unions are offering products that comply with NCUA or other regulations, Matz emphasized.
The NCUA has no authority over third parties or credit union service organizations, she said. However, the agency does prohibit federal credit unions from referring their members, for a fee, to third parties that offer payday loans with annual percentage rates that exceed an agency-determined cap.
"NCUA will review each case and use every tool at our disposal to ensure the FCUs are complying," Matz wrote.
Loans from federal credit unions are generally limited to an annual percentage rate of no more than 18%, although there is some flexibility under the National Credit Union Administration's short-term, small amount loan program. That program permits federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. For now, this amounts to an interest rate ceiling of 28%.
Most credit unions offering payday loan alternatives also limit fees, provide member financial counseling and encourage members to open savings accounts.