HARRISBURG, Penn. - Credit unions in Pennsylvania offering alternatives to payday lending could see a spike in business following the Department of Banking’s decision to crack down on out-of-state lenders.
Pennsylvania Secretary of Banking Steve Kaplan announced last week that Internet payday lenders and other out-of-state companies that make consumer loans to Pennsylvania residents will need to be licensed by the Department of Banking and comply with state laws. That means lenders making non-mortgage loans under $25,000 must comply with the state’s interest rate cap that ranges from 24% to 30%, explained Pennsylvania Department of Banking spokesperson Dan Egan. Out-of-sate payday lenders continuing to do business in this state must obtain a license from the Department of Banking by Feb. 1, 2009, or they will face fines and other penalties.
Currently, out-of-state lenders do not have to comply with Pennsylvania’s Consumer Discount Company Act (CDCA) since they do not have a bricks-and-mortar location within Pennsylvania.
But the “reinterpretation of the wording” of the CDCA has brought about the changes, Egan said. “This announcement lets it be known that if you are doing business with Pennsylvania residents you are doing business with the commonwealth, even if that’s by Internet, phone, and even mail.”
Egan said the Department of Banking has been addressing payday loans in the state for years.
“There are about 3,000 online payday lenders now,” Egan said. “We are attempting to plug holes where companies are trying to get around our consumer protection laws.”
In Kaplan’s announcement, he held up credit unions as financials that offer an alternative to payday lending that can benefit consumers.
“This is a great opportunity for credit unions,” suggested Mike Wishnow, SVP of communications and marketing for the Pennsylvania CU Association. “The secretary specifically pointed to Pennsylvania’s Better Choice Program, an alternative payday program designed by our association in conjunction with the state’s treasurer’s office. We now have 71 credit unions in Pennsylvania offering alternative payday loans with more than 190 locations.”
Wishnow said Better Choice, which has a forced savings component, is a very successful program that has been helping CU members break free from payday lending.
“We designed it to take people who are underbanked or using what I call wealth-stripping financial service companies–payday lenders, pawn brokers, and check cashers–into the mainstream financial services network via the credit union system.”
Will the new interpretation do away with payday lending in the state?
“I have been dealing with the payday lending issue for probably 20 years,” said Wishnow, a former staff member of the Pennsylvania Department of Banking. “The regulators are well intentioned. The legislators are well intentioned. And they try their best to force payday lenders out of the marketplace. But payday lenders find a way to operate between the laws. That has happened over and over again. They make a lot of money, have good lawyers and lobbyists, and I don’t think they are going away.”(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
