As payday lenders literally circle the ranks of defense personnel on military bases, there are some easy things credit unions can do right now to help counteract predatory lending practices that take aim at the nation's military, according to Hank Klein, retired president of Arkansas FCU.
"If your minimum loan is more than $100, like $500 to $1,000, I suggest you lower your minimum to $100," Klein told attendees of the Defense Credit Union Council summit held here in conjunction with NAFCU's annual meeting.
"Too many of us are relying on our credit cards to handle our small loans." Another way credit unions can take a bite out of payday lenders: make it impossible for them to keep presenting the same checks over and over again.
"Some of them will just keep presenting the check hoping that maybe this time it will be good," Klein noted.
"And every time they present that check and there aren't enough funds in the account, we're charging those members NSF fees, whittling down their ability to pay even more."
That's why AFCU has taken to using a hole puncher to obliterate the MICR line once a check has come through twice. "That prevents them from presenting the same check through the Fed over and over again, which forces them to pay a fee to keep presenting that check. It's a deterrent for them, and it helps our members avoid unnecessary fees."
Klein shared the podium with Dennis Bassford of Moneytree, Inc., and Debra York of the Fort Hood branch of Pentagon FCU.
As the sole representative of payday lenders, Bassford had the unenviable position of defending an industry that many in the credit union movement believe to be predatory and unethical.
But Bassford soldiered on to debunk a number of myths about payday lenders. "The first myth is that payday loans are always a bad choice," he said, noting that in some cases, getting a payday loan is cheaper than bouncing a check and helps preserve the person's credit rating.
Other myths Bassford cited:
* Payday loan customers don't have other options available to them. In fact, Bassford noted, most payday loan customers do have a relationship with a bank or a credit union, and many haver access to overdraft protection, as well.
* Payday lenders try to encourage long-term and repeated use of payday loans. "Payday lenders are not loan sharks, that's just name-calling," he said. "There are some bad operators out there, but I am talking payday lenders who are legal, licenseed and regulated. Payday loans, both in terms of their nature and their costs, are really very similar to overdraft protection." In fact, Bassford added, the Center for Responsible Lending has said that both overdraft protection and payday lending can trap consumers in a cycle of debt and charge usurious fees.
* Payday lenders target military personnel. Bassford said the trade association for payday lenders, Community Financial Services Association (a name that, ironically enough, avoids using the term "payday lending" anywhere in it) has adopted a set of best practices for serving the military-a move that has been praised by U.S. Rep Barney Frank.
The best way for credit unions to tackle payday lending, Bassford offered, is to compete with credit union payday loan alternatives. "If our price is too high, the market will dictate that," he said. "A credit union in our area offers payday loans and charges less than I do, and believe me, I'm feeling the competition."
