Credit unions behave irresponsibly and can’t handle their poorly underwritten car loans and subprime mortgages, but payday loans are the bad guys? Think again.
Times are tight in the desert
Car loans and home mortgages generate a lion’s share of credit union income, and Las Vegas credit unions have experienced a 43.6 percent decline compared with 2007. Results vary from one credit union to the next, with some shouldering the self-induced burden better than others.
They knowingly left the pen open, now they’re crying for capital to come back
Capital cushions credit unions from losses due to their own bad loans. All of a credit union’s capital comes from earnings. Unlike big banks, there are no independently wealthy investors who will ride in on white horses and bring the sheep back to the pen.
Signs are ominous, but some sun shines through dark clouds
Only one Vegas credit union - Community One – has reached the “yellow zone,” with operating capital between the 6 and 7 percent, which is dangerously low and attracts the attention of regulators. None have fallen into the “red zone” below 6 percent that requires immediate action.
This is strange territory for credit unions anywhere. Member-owned, nonprofit structure and conservative management have saved credit unions from some of the more serious cataclysms banks have faced over the subprime market, but the drop in real estate values has been harmful.
Danger: Delinquency
What credit unions in Las Vegas and elsewhere face is delinquencies, or loans more than two months overdue. These don’t always mean outright losses. Perhaps a borrower will pay up or collateral covers the shortfall.
The amount of delinquencies in Nevada is now running at 15 percent of capital compared to four percent nationwide, according to the National Credit Union Administration (NCUA). In efforts to stem the red tide, the NCUA Last week, will lend $2.5 billion to sagging credit unions to prop up new mortgages and grow capital. The credit must remain fluid if the economy is to return to health.
Some credit unions are trying no fax payday loans
Wait a minute… now they’re offering payday loans? It’s dogs and cats living together!
Not exactly. They’re doing so at a lower rate than free-standing lenders, so we’ll see how long that will be profitable for them.
Nevada Federal President and CEO Brad Beal claims his business’s numbers have grown due to the addition of products like payday loans, but I’m more apt to believe that the growth isn’t due to faxless payday loans offered at an untenable rate. He does say that only $200,000 of their $800 million asset base comes from these loans, however.
There will be shrinkage
This will be a long, slow ride. Numerous credit unions in Las Vegas and beyond feel that they’ll be able to weather a few years of slowed economy, but since a number of economic experts predict that our current recession will end within the next year, it won’t take that long. Payday loans will be there as the economy cycles into its repair phase and beyond. Such a flexible product that offers consumers speed, convenience and a desired amount of privacy can’t go back to living on the farm… or merely digging in the desert.
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very interesting the banks trying this method.
Well, not all banks have had success in paying their state legislatures off to ban payday loans, so that they have monopoly over financial options. Now they are offering them. Well, its apparent that the public needs them, so it makes sense that by now they are getting wise to it and getting into the market.
There’s no doubting that payday loans have an important foundation in our economy. Some people who have bad-mouthed the industry eventually realize their importance and some even having to take out a small loan for themselves. Payday loans are going to be here for a very, very long time.