CUNA: CU efforts key to avoiding payday lending trap
WASHINGTON (12/1/06)--Dean Sagar, vice president of legislative affairs for the Credit Union National Association (CUNA), said that the importance of credit union efforts to build programs to combat abusive payday lending practices was underscored Thursday by a report that such lenders pocketed $4.2 billion in excessive fees last year.
The report, released Thursday by the Center for Responsible Lending (CRL), also estimated that borrowers save $1.4 billion in states that enforce reasonable interest rate caps. The study calculated the cost of predatory lending on a state-by-state basis (see resource link below).
"America's working families pay billions of dollars in excessive fees every year, as payday lenders across the nation routinely flip small cash advances into long-term, high-cost loans with annual interest rates in the range of 400%," the CRL report said in its executive summary.
It added that despite attempts to reform payday lending, which it says is now an industry exceeding $28 billion a year, lenders still collect 90% of their revenue from borrowers who cannot pay off their loans when due, rather than from one-time users dealing with short-term financial emergencies.
CUNA's Sagar added, "The report's findings that so much of payday lending revenues are based on fees from repeat borrowers show the dangers of such practices to consumers who may be finding themselves trapped by escalating debt as they attempt to live paycheck to paycheck.
"Credit union efforts that are creating alternative, lower-cost, short-term lending programs are going to be key to the solution of abusive payday lending practices—as Congress investigates options to address such practices."
In a related story, Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair cited North Carolina State Employees' CU's short-term loan program as an example of successful and profitable alternative. She described the program as having a maximum limit of $500, a term of 31 days, a requirement that borrowers repay through direct deposit of their paycheck, and a 12% annual interest rate. This product also has a savings component that requires 5% of the loan proceeds be deposited in a savings account.
"Each month, more than 40,000 customers use this product. Overall, customers have accumulated $10 million in savings accounts," she said Thursday at a Consumer Federation of American financial services conference here.
The North Carolina lending program was also the focus of a recent editorial in USA TODAY, which took legislators to task for standing by while the payday loan industry thrives in 37 states. It said the loan program from the North Carolina credit union was a bright spot helping consumers avoid the payday lending trap.
According to Dean Sagar, "The CRL study estimating that consumers pay in excess of $4 billion a year in unnecessary fees to unregulated payday lenders illustrates the importance of credit union efforts to develop suitable short-term loan alternatives and that will help working American families save money and avoid abusive lending practices."
More Washington
News Now LiveWire
- Iowa Gov. Terry Branstad credited Dupaco Community CU for its role in helping an Iowa small business grow and create jobs. - 2 hours ago
- Iowa Gov. Terry Branstad visits Dupaco Community CU, notes CU's role in helping small bizzes grow & creating jobs in state. - 3 hours ago
- Gunman killed Friday in shootout w/ police outside PBC CU, West Palm Beach, Fla., I.D.'d as Christopher Brown, 18. No one hurt inside CU. - 3 hours ago
- In Wash Post article on ?end of Fannie and Freddie,? CUNA?s Hampel says CUNA, CUs are working on contingency plans. http://t.co/bzmi57mY - 4 hours ago
- John Bell, an employee of NC Community FCU, has announced his candidacy for the NC House of Representatives. - 3 days ago
- See all our Tweets and sign up; News Now LiveWire on Twitter
