WASHINGTON (4/26/13)--As regulators unveiled plans Thursday to put bank payday and advance-deposit loan practices under increased scrutiny, the Credit Union National Association noted that there are pro-consumer credit union alternatives to predatory payday lending.
The proposed Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. guidance aims to improve underwriting standards for these short-term loans, require banks to evaluate an applicant's ability to repay before they take out a loan, and create a mandatory one-month "cooling-off period" between loans. The OCC and FDIC will accept comments on their proposed guidance for 30 days after it is published in the Federal Register.
CUNA is reviewing the rule and will be filing a comment letter.
A March Center for Responsible Lending report condemned some big banks' payday lending practices, and found that payday loans offered by six large firms carried an average effective annual percentage rate (APR) of 225% to 300%. Credit unions across the country have implemented various programs in order to provide individuals in their communities an alternative to these and other high-priced products.
CUNA Director of Data & Statistics Marc Shafroth noted 8% of credit unions offer payday loan alternatives.
The National Credit Union Administration's short-term, small amount loan program permits federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. For now, this amounts to an interest rate ceiling of 28%. Many of these products feature low fees, and credit unions also reach out to members that take out these loans to offer financial counseling and encourage them to take on more stable sources of financial services.
For more on the OCC and FDIC guidance, use the resource links.
The Consumer Financial Protection Bureau also plans to look into payday loan regulations. State and federal legislators are also acting to address payday loans. (Use the resource link to read April 24 News Now story: CFPB Payday Loan Study Warns Of Harmful Debt Cycle.)