WASHINGTON-Two consumer advocacy groups are urging NCUA to crack down on nine credit unions that allegedly engage in usurious lending practices akin to payday lending, but the agency has said in most the cases cited, the practices are perfectly legal, and NCUA is not in a position to take action.
The National Consumer Law Center, which issued a report on payday lending in 2010 that found more than credit unions making potentially predatory loans, and the Center for Responsible Lending teamed up to write a letter to NCUA Chairman Debbie Matz, calling on the agency to put an to predatory lending by credit unions.
The loans in question usually carry an APR below the agency's 18% usury threshold, but they also include fees that, if factored into the cost of the loan, would drive the APR well above 18%, in some cases as high as 223%, according to the groups. These loans typically are for small dollar amounts and for short terms.
NCLC and CRL cited Kinecta FCU's Nix Check Cashing subsidiary as an example. "Kinecta discloses a 15% APR for its two -week loans, but it adds an 'application fee' on each loan that brings the true APR on a $400 loan to 223%," the groups claimed.
Other credit unions on NCLC and CRL's list use CUSOs as a means of getting around the usury rules, the advocacy groups allege. "The CUSOs make explicit triple-digit APR loans to the credit union's members, using the credit union's name in the web materials," they wrote. "The credit union likely gets a kickback (a "finder's fee") for a loan made by the CUSO that the credit union might not be able to legally offer directly."
The consumer advocates are urging NCUA to follow the lead of its FFIEC cohorts on the banking side-OCC, FDIC and the Fed-which have all taken steps to ensure their banks are not engaged in these types of lending practices.
But NCLC and CRL did also note that these practices are hardly wide-spread among credit unions. Of the more than 7,200 credit unions in the U.S., only nine were found to be offering loan programs that the groups considered to be predatory. That's down from the 58 credit unions the NCLC cited in its report on payday lending in 2010. But while 52 of those 58 have ceased making these loans, not only did six continue to do so, but three more have since entered the business, the two groups noted.
Credit unions cited by NCLC and CRL are: Tri-Rivers FCU, Kinecta FCU, Buckeye Community FCU, Martin FCU, Orlando FCU, Rairoad & Industrial FCU, Tallahassee FCU, Louisiana FCU and Clackamas FCU.
NCUA Chairman Matz was quick to point out that NCUA has taken steps to ensure credit unions engage in fair lending practices, even going so far as to caution CUs about some lending practices that are, in fact, perfectly legal.
"I care very deeply about protecting consumers from predatory payday loans and providing credit union members with affordable alternatives," Matz said in a statement. "Like the National Consumer Law Center and the Center for Responsible Lending, I share a passion for ensuring that consumers have access to credit that will enrich their lives. Our ultimate goal is to empower borrowers to break free of their reliance on payday loans by improving their credit scores and qualifying them for lower-priced financial services."
Matz lauded the research conducted by NCLC and CRL and pointed out that NCUA did take action based on that research in 2010. "When their 2010 report identified 58 credit unions that were offering high-priced short-term loans, NCUA took action and convinced 52 of those credit unions to lower their fees even though they were not violating any law or regulation."
Moreover, NCUA has a proven track record of working on behalf of consumers, including its recent creation of the Office of Consumer Protection in 2011, which is tasked with enforcing consumer laws and regulations that apply to federal credit unions-but in some of the cases cited by NCLC and CLR, the agency simply does not have the authority to take action. "Of the nine institutions NCLC identified in its report of May 2013, six are making short-term loans through third-party vendors over which we have no statutory enforcement authority. I am very troubled that these vendors are making high-priced loans using the names of credit unions. In the three instances where federal credit unions are charging high fees for short-term loans, we will review each case and use every tool at our disposal to resolve the situation."
But that is something NCUA is looking to change, as it has been eyeing increasing its authority over CUSOs.
