LENEXA, Kan. (8/5/09)--A credit union service organization (CUSO) that specializes in payday lending alternative loans is commending the National Credit Union Administration's (NCUA) letter encouraging federal credit unions to service their members' small loan needs. The letter was released last week. The number of credit unions offering payday lending alternative loans has grown from about 50 a few years ago to more than 250 now, according to NCUA. Lon Neofotist, managing director of XtraCash LLC, the CUSO, said the letter underscores the reasons why the organization was formed: to provide a risk-free, affordable alternative to payday lenders, and to make a difference for the members by providing a lower-cost alternative and a pathway to financial stability. Nationally, more than 19 million U.S. households use payday loans, which total more than $42 billion annually, said XtraCash. "Credit unions should indeed 'step to the plate' and offer small dollar loans to their members," said Neofotist. "However, at 18% APR (annual percentage rate), the interest earned on a $100 loan computes to roughly 69 cents for a standard 14-day loan term. While credit unions should make it as affordable as possible, they should do so without having other members absorb the cost. At 18% APR, other members must subsidize the costs to process and service these loans," he added. The CUSO noted that payday lending APRs are much higher than standard loan rates because they are short-term, high-risk, high-loss loans. "Xtracash fully discloses fees as a dollar amount and as an APR on its website, as well as in all loan documents, so members are fully aware of the costs of the loans and are not misled," Neofotist said. Neofotist said that the CUSO has saved members and credit unions more than $1 million and assisted in providing member financial literacy. Members using XtraCash can complete more than 800 hours of online financial education. "Through this education and counseling, we are striving to move the member away from short-term loans and turn them toward more mainstream, lower-cost products and services," he said. He noted that XtraCash is already following several suggestions in NCUA's letter, which mirror the Community Financial Services Association of America (CFSA) Best Practices. They include:
* Clear and full disclosure of cost, both as a dollar amount and as an APR; * No false, misleading or deceptive advertising; * Encouragement of consumer responsibility; * Limit on the number of roll-overs allowed; * Right to rescind at no cost; and * Repayment over a longer time period/extended payment plans provided to consumers.