ALEXANDRIA, Va. – The NCUA Board, looking to encourage more credit unions to offer payday loans, proposed lifting the maximum allowable rate on the short-term loans from the 18% APR set for all loans to as high as high as 28%.
The higher rate, said NCUA Board member Gigi Hyland, would allow credit unions to balance concerns for safety and soundness while making payday loans more attractive for them to offer.
The NCUA proposal, issued for a 60-day comment period, would set the maximum allowable application fee for the loans at $20 and would apply to loans up to $1,000 for as long as six months in maturity.
The move comes as a small, but growing number of credit unions are offering payday loans to their members and non-members within their fields of membership. At year-end 2009 only 352 federally chartered credit unions offered some type of payday loan. But many credit unions are deterred from offering the loans because of the low profitability, according to the NCUA Board members. "This type of loan is basically a break-even proposition," said Board member Michael Fryzel.
Payday loan companies typically offer these types of loans for as high as 400% APR, the Board members pointed out.
Current NCUA rules set the maximum allowable APR for loans offered by federally chartered credit unions at 18%.
The NCUA proposal also asks credit unions whether they would prefer setting the allowable APR as high as 36% when counting the fees under APR.
