Predatory loan practices not limited to U.S. consumers

KILLARNEY, Ireland – If the saying “misery loves company” is true, then credit unions can take solace-albeit small solace-from the fact that predatory lending is not just a problem plaguing U.S. consumers, it’s pervasive worldwide. Just how widespread predatory loan practices and other fringe banking abuses are throughout the world became evident during a breakout session held on the topic at the World Council of Credit Unions’ (WOCCU) 2001 International Conference recently held here. “Check cashing services and payday loans are a big problem in the U.S.,” said presenter Ed Gallagly, President and CEO of Florida Central Credit Union in Tampa, Fla. He cited that people who get a loan to keep them solvent from payday to payday often get into a vicious trap when they can’t pay it back when they expected. Interest charges mount and mount again. Gallagly mentioned a woman at his credit union who had over $1,000 in interest charges when she came to FCCU for help – and she still had the original $250 loan to pay back. She had taken out the loan originally for a week, but for months could not pay either the principle or the rapidly increasing interest. Gallagly told of the efficiency in marketing of these predators. At the present time, there are about 14,000 payday lenders in the U.S., and it is predicted that there will be over 20,000 within the next two years. Interest on their loans can vary from 25% to 700%. This is a market for credit unions, Gallagly pointed out. Not just from the sense of finding a market need and filling it, but to rescue members from such organizations. Sadly, he said, despite great inroads, access to financial services for the poor in the United States is at the worse level since the 1940s. Credit unions must work to fill this void, but realistically Gallagly admitted, it can be done “only one member at a time.” He called on all credit unions to use their window of opportunity to help eradicate poverty. Gallagly’s audience was made up of credit union representatives of the 30 different nationalities attending the WOCCU meeting, and it quickly became evident that the situation with predatory lenders was extremely different from geographic area to geographic area. Irish credit unions, for example, were formed in the 1960s and 1970s particularly to bring banking services to those who lacked access to them. Prior to their formation, the Irish poor were victims of pawn shops and loan sharks. Now with almost every Irish person has some access to credit unions, either through their parishes, community or employers, making predatory loan practices a minor part of the scene compared to thirty or forty years ago. According to Donald Urquahart and Marlene Shiels of Capital Credit Union in Edinburgh, Scotland, the problem is just beginning to surface. They say it is no where near as intense as Gallagly described. “There’s open gambling in Australia,” Richard J. McCauley, Director of the New South Wales Teachers Credit Union explained. This type of loan shark waits outside and then hands out their cards. It is an efficient marketing tool, in a very sad way. However, Tony Lauer, Director of the New South Wales Police Credit Union, said, that in some instances members have come to his credit union, but they give false reasons for loans rather than admit why they need the money. One woman, he said, referring to a micro example, always used the same excuse – her teeth. But the general feeling is that credit union members do not always want to admit gambling problems or other crisis situations when they need money, and go to less reputable sources. Ranjith Hettiarachchi, General Manager of the Association of Asian Confederation of Credit, considers the problem of predatory lending almost epidemic not just in his country of Thailand but throughout Asia. He cited cases of interest being charged up to 1000% of the cost of the loan. Directly opposite to this Marcel Chorel of Credit Union Central in Canada, said, although loan sharks exist in Canada, their number is so small that he wouldn’t even begin to know where to look for one. One area where no one disagreed was that credit unions can be part of the solution to banking abuses. -