110th CONGRESS, LEGISLATIVE ISSUES A - Z

ISSUE: Payday lending refers to single-payment, short term (13-17 days), small loans ($100-$500) based on personal checks or share drafts. In a typical payday loan the consumer writes a personal check drawn on a financial institution (which is held by an unregulated finance company or other payday lending institution) for the amount borrowed plus a fee. The fee, stated as a percentage of the check or of the loan, generally $15/$100, usually translates into triple digit annual interest rates.

The lender agrees to not deposit the share draft until the consumer’s next payday. When the loan is due, the borrower can redeem the share draft for cash, allow the share draft to clear through the credit union, or pay another fee, again $15/$100 to extend the loan for another two week period.

It has been estimated nationally that approximately 20% of payday loan customers are within the field of membership of at least one credit union.

LEGISLATION: On June 26, 2007, Rep. Tom Udall (NM-3) introduced the “Payday Loan Reform Act of 2007”, H.R. 2871. This bill amends the Truth in Lending Act and the Federal Deposit Insurance Act to prohibit payday loans based on checks drawn on, or authorized withdrawals from, depository institutions and to prohibit insured depository institutions from making payday loans, and for other purposes.

CUNA POSITION: CUNA and its member credit unions are committed to providing a safe and affordable alternative to predatory payday lenders. CUNA supports federal legislation regarding the exportation of interest rates – which “payday lenders” are currently using to circumvent state laws – that would prohibit depository institutions from making any deferred deposit loans, either directly or through any affiliate of agent.

OPPOSING VIEWS: The payday lending industry argues that fees on a short- term loan are cheaper than the fees a financial institution would charge for a bounced check. The industry also claims that a short-term “convenience” loan should not be held to the same standard and APR rate as a regular loan. Additionally, one of the primary reasons payday borrowers give for choosing a high cost payday lender over a traditional financial institution is the convenience of hours of operation and location.

IMPACT ON CREDIT UNIONS: Credit unions across the country have implemented various programs in order to provide individuals in their communities an alternative to the high-priced payday lenders. Additionally, allowing credit unions to provide check cashing services to non-members within their field of membership has given credit unions the opportunity to bring the unbanked and underserved communities into a mainstream financial institution, providing access to other services such as savings and lending.

STATUS/OUTLOOK: CUNA will continue to monitor any developments regarding payday loans, including the “Payday Loan Reform Act of 2007”, H.R. 2871.

CONTACT: Allen Chew, (202) 508-6718, achew@cuna.coop.

Related Documents:

Payday Lending: Report of the State Issues Subcommittee of the Government Affairs Committee

Payday Lending: Myths & Realities

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