Payday Lending Catching On At Credit Unions

Payday lending has been constantly advocated as ‘bad’ by banks and credit unions whose sole desire has been to lock people into long-term higher-dollar loans instead of letting them avail of smaller loans. But, the concept of payday lending seems to be slowly catching up with credit unions as they are finally bowing down to public demands.
The Nevada Federal Credit Union has been offering the ‘AdvancPay’ service since the last few years and now the demand for payday lending has grown stronger as a result of the present economic scenario. Customers are eager to take advantage of short-term loans to get out of a financial soup.
According to Brad Beal, the President of the Nevada Federal Credit Union, although the system of AdvancPay is very handy for availing of some quick cash, he wonders whether they are actually ‘helping or hurting’ the consumer by the payday lending scheme but all this is lip service.
Like the payday lending industry, the credit unions charge an interest rate as a safeguard to minimize risks in the transactions. Nevada FCU also offers free financial counseling like any other self-respecting payday lending business. But payday loans should be restricted to occasional use and proper budgeting is necessary otherwise it will be easy to get caught in a cyclical nature to keep supplementing the bank account.

The handling of payday loans by Nevada FCU covers approximately 12,000 payday loans for the year 2009 which comes to a total of about $8million. This is a rough estimate based on the maximum amount which is allowed per loan and Nevada FCU caps it at $700. These numbers are almost similar to other payday lending organizations but unlike them, Nevada FCU charges $60 as application fees even when there is no guarantee that the applicant will get a loan. The repayment time is also one year instead of the standard two weeks which because of its excessive time limit is very easy to forget and then the penalties will be a lot to pay.

The standard payday lending business model with its two weeks time limit is the better deal for consumers who wish to keep the loan fresh in their minds.  Organizations using post-dated checks also have an in-built security measure also. If Nevada FCU really wishes to be helpful to their customers, they should follow this proven method and this would perhaps reduce the reported $75000 lending losses of 2009 through July. In any case, writing things off as losses is not helpful for the economy.

Payday lending is to the advantage of both the responsible consumer and the lender but credit unions are unwilling to see the full picture. The National Credit Union Administration has been offering products related to payday lending but they wouldn’t do it if it wasn’t beneficial for them. By saying that “payday lending isn’t financially feasible for lenders”, they are simply trying to put payday lending in a bad angle. But, if done correctly, payday lending is viable for both the consumer and the lender.

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This entry was posted on Thursday, October 1st, 2009 at 4:31 pm and is filed under Credit Unions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.