Study Evaluates Payday Loan Alternatives, Finds Some CU Programs Wanting
BOSTON-A new study is critical of some credit union and bank "alternatives" to payday loans, saying such programs also "plunge consumers into a costly and nearly inescapable debt cycle."
That is among the primary conclusions of "Stopping the Payday Loan Trap: Alternatives That Work, Ones That Don't," a report from the National Consumer Law Center.
"Too many providers of so-called payday loan alternatives hit consumers with some of the same onerous provisions that predatory lenders use to saddle unwary and vulnerable borrowers with loans they can't afford to repay," said Lauren Saunders, managing attorney of NCLC's Washington office and principal author of the report, in a released statement.
According to the NCLC, affordable small loans are available for those who seek them out, especially at credit unions, the report found. The organization said its researchers reviewed hundreds of small loans. "Many genuine payday alternatives are in the market, but some products are nearly as bad as or even worse than payday loans," said Leah Plunkett, the report's coauthor. "Cash advances offered to checking account holders by Wells Fargo Bank, U.S. Bank and Fifth Third Bank are payday loans, plain and simple-triple digit loans repaid on the next payday."
In a released statement, the NCLC said, "Even some federal credit unions are exploiting loopholes to offer payday loans at triple-digit interest rates, including California-based Kinecta Federal Credit Union's 14-day loan with an annual percentage rate, or APR, that the report estimates at 362%. Other federal credit unions offer expensive loans from E-AccessLoan.com."
The NCLC said "genuine alternatives" were available from some credit unions, including the Credit Builder loan from Alternatives Federal Credit Union in Ithaca, N.Y.
"Genuine and safe payday loan alternatives must have annual percentage rates, including fees, no higher than 36%; terms of at least 90 days, repayments in installments and no check-holding or electronic access to the consumer's bank account," the NCLC said. "Such loans can help consumers escape the "debt traps" operated by payday lenders, who rely on high costs (annual percentage rates up to 390 percent or more), short terms, balloon payments and coercive security provisions to force victims to roll over loans and pay astronomical fees.
The report is posted on-line at: www.nclc.org/issues/payday_loans/content/report-stopping-payday-trap.pdf.