The Scarlet Lender

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SALT LAKE CITY-A local consumer advocacy group camped out on the steps of America First CU last week and assailed it and seven other Utah credit unions as predatory lenders for payday alternatives they offer their members.

Whether or not the issue will be raised by other groups in other cities against other credit unions is unknown, but in Salt Lake City the attack did garner significant media attention.

"Utah has a number of credit unions that are offering predatory products," said Linda Hilton, the head of the Coalition of Religious Communities, which has been high-priced payday lenders and check cashers for years.

She was referring to a new study issued by the Boston-based Center for Consumer Law, which analyzed more than 500 payday loan programs across the country, at least 100 offered by CUs, and concludes that many programs offered by credit unions have high annual percentage rates, despite offering 0% financing.

Study Critical Of CU Payday Loan Alternatives

The study shows that payday loan alternatives offered by America First and seven other Utah credit unions-Alliance CU, Cyprus FCU, Family First CU, Heritage West FCU, Mountain America CU, Southwest FCU and USU Charter CU-offer rates as low as 18%, but high fees, sometimes on a monthly basis, push the APR into three digits, some as high as 350% APR (see related story below). In the case of America First, Hilton's own credit union, its "e-access" loan charges an 18% rate, but the $59 a month fee pushes the APR to 254%.

"We don't think it's right for a credit union to be offering predatory products. It seems contrary to what a credit union is all about," Hilton said. "That [America First's APR] is usury at its finest. Usury is a sin."

Nicole Cypers, a spokesperson for America First, emphasized that the credit union's rates are half as much as typical payday lenders and similar products offered by other area lenders. "If we don't offer this product they have nowhere else to go," she said.

Scott Simpson, CEO of the Utah League of CUs, expressed frustration at the attack by consumer groups CUs have been working with for years to provide an alternative to payday lenders. "It's pretty frustrating and a little confusing," he said. "These are folks who for many years have asked credit unions to get involved and offer a payday loan alternative. And we've done that, at half the price that others are charging."

"If we don't provide it for our members they're going to go elsewhere and pay the much higher price," continued Simpson, who asserted that credit unions need to charge high prices to account for the risk. "People have to understand that this is a product that is used by a small percentage of people and credit unions have a responsibility to the greater portion of their members."

The blow-up comes as a growing number of CUs are introducing payday loan programs, many through CUSOs such as CU Access, which is half owned by America First and half-owned by Capital Finance LLC of Salt Lake City, or CU on Payday, which provides payday loans through more than 30 credit unions.

NCUA is currently considering several steps to deregulate payday loans, including raising the usury ceiling on short-term, low-dollar loans from the current 18% to as high as 36%.

Defending CU Programs

John Lund, EVP at CU Access, said the online product is now offered by more than 45 CUs and demand for it has been tested against the proposition that they are low-profit. "If we're going to offer these things we have an obligation to the rest of our members not to be giving them away," he said. He disputed some of the findings of the study, saying the CU Access loans, also offered as e-access loans, charge 18% interest annualized for 30-day periods and a $20 fee, charged again if the loan is rolled over a second month. "It's way, way less than the payday lenders and we're trying to help our members."

The report by the Consumer Law Center, called "Stopping the Payday Loan Trap," cites what it calls four myths: that any alternative that is slightly cheaper than a traditional payday loan is a good alternative; that any loan that does not give the lender an excessive profit is a responsible loan; that a payday loan alternative needs to look like a payday loan; and that expensive loans must be tolerated because there is demand for them and we should not restrict access to credit.

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