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Utah league CU short-term loans provide needed service
SALT LAKE CITY (7/6/10)--Rates for short-term loans offered at Utah's credit unions are much lower than those assessed by payday lenders there, and credit unions' alternative loans come with features to assist members in managing their credit. Scott Simpson, president/CEO of the Utah League of Credit Unions, made those points to media last week, saying that credit unions' short-term loans offer rates that are half those of payday lenders. Credit unions' loans also come with credit counseling and a savings plan, and are given only to people whose credit is so poor they don't qualify for other kinds of credit, he said. Credit unions must as a necessity charge a higher interest rate because of the risk involved because short-term loans often have a high rate of default. "When you extend credit, it comes at some cost," he said. "This is not a product of first resort; it's a product of last resort," he told News Now, adding that few members use it. One credit union told him less than one-tenth of 1% of its members use that product. "But when they have no where else to go and they need cash, they can work with an institution that offers traditional products and can help them transition into a better savings structure or environment," he said. The comments were made after a group calling itself the Coalition of Religious Communities held a press conference criticizing eight credit unions in the state for offering short-term loans, which the group said was predatory (Salt Lake Tribune, Deseret News and Associated Press June 30). "It's frustrating, because we were responding to clamor in the environment, where people wanted someone to displace payday lenders," Simpson told News Now. "But credit unions are lending other peoples' (members') money and they need to mitigate the risk," he said. Credit unions' rates are half of what the marketplace is bearing. If credit unions stop making these loans, consumers who want or need fast access to cash will be driven back to payday lenders, said Simpson "If credit unions stopped offering those products, I guarantee that those people that need them would be using payday lenders and they would be paying a lot more," he told the Tribune. The typical rate charged by payday lenders is 521% annual percentage rate (Deseret News June 30). Associated Press reported the story and it has been picked up nationally in media such as The New York Times, The Washington Post, ABC News, CBS News the Huffington Post and more.

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