Buzz Blog

Consumer advocates are warning there’s a new breed of sharks out there—credit unions offering payday loans with triple-digit interest rates.---

Linda Hilton, with the Coalition of Religious Communities held a press conference this morning outside of the America First credit union to protest a new trend in payday loan products being offered by local credit unions in Utah. The loans have often been criticized as usurious and often trapping low-income consumers into cycles of debt. Hilton noted that typical payday loans in the Utah’s industry average 521 percent Annual Percentage Rates, now she says Credit Unions are cashing in on a lucrative and exploitive business by offering their own payday loan products.

She also says the trend is one fomenting here in Utah, citing a recent study on payday loans from credit unions put out this month by the National Consumer Law Center. “We would not like to be ground zero for this predatory loan product,” Hilton told the conference.

Scott Simpson, President of the Utah League of Credit Unions, countered that the credit union’s product was not the same as typical payday lenders. Citing the credit union loans as having a ceiling of 288 percent APR, nearly half of the typical payday lenders. “Historically we’ve had a clamor in the community for Credit Unions to provide a payday lending alternative,” Simpson says. “An alternative in the marketplace that displaces the other payday lenders. We’ve come up with a product that by their own admission is half the APR [of other lenders] and they want us to shut that down because they don’t like the APR.”

Simpson says at least credit unions can offer better products as well as financial counseling and even special savings deferment products attached to payday loans that will defer some of the loan payments back to a savings account so the consumer will be on surer footing when they have the loan paid off. “If these [advocates] get their wish they’re going to be driving people who use this lower cost alternative in the marketplace to a higher cost alternative,” Simpson says.

Hilton is still not impressed with the product, she cites one pay day loan product offered by Mountain America Credit Union that offers a 6 day loan with an APR of 876 percent. She also cites how the national report, lists numerous Utah credit unions as advertising their payday loans as having 0 percent interest plus fees--with the fees creating an effective APR of up to 288 percent.

“There are credit unions across the country offering a true alternative, a double-digit interest rate, not a triple-digit rate and not one advertised as a zero percent loan just with fees. “[Simpson] says they should be congratulated for offering such a fine product,” Hilton says. “Offering a loan with a 288 percent APR is not a fine product, I’m not congratulating him, I don’t agree.”

UTAH CREDIT UNIONS OFFERING PAYDAY LOAN PRODUCTS

(Source: “Stopping the Payday Loan Trap,” National Consumer Law Center)

Alliance Credit Union

Interest: 18 percent

APR with fees: 254 percent

America First Credit Union

Interest: 18 percent

APR with fees: 254 percent

Cyprus Credit Union

Interest: 0 percent

APR with fees: 288 percent

Family First Federal Credit Union

Interest: 18 percent

APR with fees: 254 percent

Heritage West Credit Union

Interest: 0 percent

APR with fees: 288 percent

Mountain America Credit Union

Interest: 0 percent

APR with fees: 288 percent

Southwest Federal Credit Union

Interest: 0 percent

APR with fees: 288 percent

USU Charter Credit Union

Interest: 0 percent

APR with fees 288 percent