Deregulation Sought On CU Payday Loans
ALEXANDRIA, Va. – Credit unions are favoring NCUA’s proposal to deregulate payday lending but say the agency should drop proposed requirements that could make it tougher to qualify for the short-term, small amount loans.
Commenters on NCUA’s proposed rule are supportive of the bid to raise the interest-rate cap for payday loans to as high as 36% from the current 18%, but say other provisions of the rule, such as requirements for direct deposit, payroll deduction, length of membership and limits on loan rollovers, will make it more difficult for credit unions to offer payday loans, which are generally agreed to have negligible profitability.
“Consumers will consider many of the NCUA short-term loan proposals as a hindrance to receiving credit and as a result will inhibit credit unions from producing a viable program that will be accepted by the marketplace,” wrote Lon Neofotist, managing director of Lenexa, Kan.-based Xtracash, a payday lending CUSO owned by Mazuma CU.
“NCUA should not dictate number of pay stubs or direct deposit,” commented Frank Berrish, president of Visions FCU. “Many of the individuals being served, particularly in the inner cities, may work for small businesses that do not have direct deposit, and it would be wrong to exclude some members from this program who just started new jobs and need this help the most.”
“The terms and conditions should be left up to each credit union choosing to offer this type of product and not included in any of the rules and regulations,” wrote Nikki Gaylord, vice president for lending at Purdue Employees FCU. “Let each credit union choose their own risk level.”
“Every credit union that I have read or heard about cannot compete in this marketplace at the rates imposed by NCUA,” wrote Charles Bruen, president of First Entertainment CU, who called the NCUA proposal “faint-hearted” and “timid” and a mere “public relations effort.” Bruen said even the 36% rate contemplated by NCUA would be insufficient to operate at a break-even point.
Bruen said he believes in drafting the proposal NCUA relied too much on what the FDIC is proposing for banks. “With all due respect, it looks like the NCUA Board is playing follow-the-leader with the Federal Deposit Insurance Corporation’s similar small loan project is engaged in a public relations exercise rather than a practical effort to help consumers,” he wrote. “Neither of the two federal agencies’ proposals is based upon the true realities involved in payday lending and both are inevitably doomed to fail.”