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.
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 end 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 all have taken steps to ensure their banks are not engaged in these types of lending practices.
But NCLC and CRL did note that these practices are hardly widespread 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 is 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, Railroad & Industrial FCU, Tallahassee FCU, Louisiana FCU and Clackamas FCU.
