IMPACT: Credit union swaps payday loans for friendlier offering
Investigation of payday lending at credit unions has stopped selling the controversial loans and is instead offering a more consumer-friendly product.Mountain America Credit Union had offered its 320,000 member-owners a “MyInstaCash” loan that topped out at an 876 percent annual interest rate for a $100, five-day loan.
These short-term, unsecured loans are usually due when the borrower receives his or her next paycheck. Consumer groups say lenders charge exorbitant interest and often trap borrowers in a cycle of debt that they can’t escape.
The new "Helping Hands” loan complies with rules set by the National Credit Union Administration that permit federal credit unions to lend at a maximum 28 percent annual rate provided they follow certain guidelines, such as giving customers more time.
"Our intent is to offer a payday lending alternative that will help these members get out of the payday lending cycle," said Sharon Cook of Mountain America, in an emailed response to questions.
Mountain America, a large credit union with $2.8 billion in assets, is one of several that skirted the interest-rate-cap rule by partnering with third-party lenders that financed the loans. Customers were directed to these lenders through a link on the credit unions’ websites.
Those lenders would then turn over a finder’s fee, or a cut of the profits, to a separate business, set up by the credit union.
The third-party lender that backed Mountain America’s payday loans was Capital Finance, LLC, located just a few miles from Mountain America’s headquarters in a Salt Lake City suburb.
But Mountain America wasn’t just a client of Capital Finance. It was also — at least as of this past spring — a business partner.
In a telephone interview in April, Capital Finance executive David Taylor said that Mountain America and another large Utah credit union, America First Federal Credit Union, are part owners along with Capital Finance of “CU Access” — another payday product for credit unions (CU Access appears to make loans that comply with federal guidelines).
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"And there's a check-cashing place on the corner. There's a pawnbroker, a loan office, and another payday loan place. People are getting into debt to loan sharks and even pawning their things to keep their businesses from going under.
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Other credit unions named in the iWatch story are still making high-cost loans. They include Kinecta Federal Credit Union in California, which actually owns a chain of 48 storefront payday lenders called Nix Check Cashing, where the interest rate is
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