DES MOINES, Iowa — The car title payday lending industry is relatively new to Iowa, but the Iowa Credit Union League has already seen enough of that industry's practices to know they're abusive. So the league is working closely with the state legislature to make it possible for credit unions in the state to be able to offer a low-cost, alternative payday lending solution.
Justin Hupfer, vice president of government affairs for the league explained the car title industry in Iowa is "fairly new," but already the typical signs of abusive payday lending practices are evident. Currently there is no limit on the interest rates the lenders can charge, and Hupfer says the rates are as high as 300% annually.
The Iowa Consumer Credit Code limits the rate credit unions and banks can charge on short-term loans to 21%. For the past two years, legislation that would put a similar cap on the rate payday lenders in the state can charge has passed the Iowa state Senate, but hasn't made it out of the state House.
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"The Senate wants to outlaw payday lenders, but the House would rather create more competition for them," Hupfer explained.
That's why Iowa league representatives have been working closely with state Senators and House members to garner their support.
According to Hupfer, the payday lenders have taken the position that if the 21% cap passes, then it will be too risky for them to offer the product and they'll close up shop in Iowa.
"When the state legislature adjourned in April without a bill passed by the Senate and House, it became clear the legislators were counting on credit unions to provide an alternative payday loan product and serve that niche currently served by the payday lenders," said Hupfer.
In May, the Iowa league formed a 15-member payday lending task force that has since met twice. The task force, said Hupfer, has been studying the business models of alternative payday lending programs being offered by other credit union leagues, and also assessing whether Iowa state law permits credit unions to offer those types of programs or whether CUs need to introduce a legislative proposal.
Last month, for example, the task force met with staff from the Pennsylvania Credit Union Association to learn the details about the PCUA's new Better Choice Program that was developed in partnership with the Pennsylvania state Treasury and Banking Departments.
In addition to the Iowa league's efforts, credit unions around the state have also stepped up to offer their own programs. University of Iowa Community CU began offering its program Aug. 1, and Veridian CU plans to roll its program out the first quarter 2007. Hupfer said neither of those CUs' models have legal prohibitions or obstacles.
"The large majority of credit unions in Iowa have an interest in offering an alternative payday lending program," said Hupfer. "We're comfortable we'll have a legislative proposal by the time the legislature convenes in January that will allow more credit unions to get into the programs." –[email protected]
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