Critics Say PAL Program Would Make CUs No Better Than Payday Lenders
“Loans that do not take into account a borrower’s ability to repay are irresponsible and harmful."
A proposed NCUA Payday Alternative Loan program would not expand credit opportunities to members and would blur the line between credit unions and predatory lenders, the National Federation of Community Development Credit Unions has charged.
“By creating products modeled on the payday lending industry we are slowly eroding the strong brand equity of credit unions reducing our ability to justify the many benefits of being socially responsible institutions,” Cathleen Mahon, president of the federation said, in a letter to the NCUA.
Mahon’s criticism of the proposed program was filed as part of her comments on the proposed NCUA payday loan program.
More than 100 consumer groups also have filed their opposition to the proposal.
The new program would increase the maximum loan amount to $2,000, increase the maximum loan term to 12 months, require no minimum length of membership to obtain loans and eliminate the provision that allows a federal credit union to make only three loans to a member in a six-month period.
Credit union trade groups have said the new program would remain unattractive to credit unions.
But Mahon said there is little evidence that the new program would address the harmful impact of predatory payday lenders.
“It simply offers a mechanism for credit unions to charge more for credit to those same consumer segments,” she said.
Mahon said that community development credit unions already are meeting the short-term loan needs of their members through traditional consumer lending.
She said the federation opposes the NCUA proposal to allow a 28% interest rate on loans as large as $2,000, as well as the elimination of the maximum number of loans a borrower may receive.
“Loans that do not take into account a borrower’s ability to repay are irresponsible and harmful,” she said.
The consumer groups, which include the federation, Americans for Financial Reform, Center for Responsible Lending, and the NAACP, said they oppose the interest rate, as well as permitting more than six application fees in a 12-month period.