Give the people what they want
Payday lending has been consistently bashed by banks and credit unions that have been eager to capitalize on a legitimate market where there is real demand. The overriding desire has been to get people away from small loans and lock them into longer-term (read: longer period to compound interest), higher-dollar loans. While profitable for these large institutions, it’s wasteful for the consumer in the long run. If you need $100 to $1,500 quickly, why should you have to wait to take out a loan for a few thousand more? Why should you also have to pay interest on money you don’t need?
Some credit unions get this
They’re attempting to meet the public demand for payday lending. The Las Vegas Sun reports that Nevada Federal Credit Union has been offering a service called AdvancPay for the past few years. It took a while for it to catch on, but America’s current economic conditions have upped demand, proving that consumers are eager to take advantage of short-term loans when they’re in a financial pickle.
Nevada Federal Credit Union President Brad Beal indicated that AdvancPay is (for a non-payday lending establishment) a low cost alternative for consumers in need of quick cash. Much like those in the payday lending industry, the credit union charges an appropriate interest rate to cover the risk in the transaction. In order to keep the unjust criticism surrounding payday lending from sticking to them, Beal claims that they struggle with whether they’re “helping or hurting” consumers. It’s lip service, to be sure. Any financial organization needs to make sure they’re protected when they enter into a loan situation with a consumer. Charging appropriate interest is vital. Nevada Federal Credit Union knows that as well as any payday lending establishment.
Free financial counseling is available
Like any reputable payday lending business, Nevada FCU offers free financial counseling. Payday loans should never be used in a cyclical nature to continually supplement your bank account. Occasional use and proper budgeting techniques are optimal.
How has Nevada FCU been doing with payday lending?
For 2009, they have issued approximately 12,000 payday loans totaling about $8 million. That is an estimate based on the maximum amount allowed per loan, which Nevada FCU caps at $700. These numbers would not be too far out of step with a wide range of payday lending businesses. However, unlike reputable payday lending businesses, the credit union charges a $60 application fee, even though they don’t guarantee the applicant will receive a loan. Furthermore, they give the customer a year to pay back their loan, which is quite different than the standard two weeks payday lending businesses tend to give customers to repay their loans. Imagine how easy it would be for a customer to forget if they let their loans go full term. Imagine what penalty fees will immediately be assessed.
I’ll go with the payday lending business model
Two weeks is ideal for customers who want to keep repayment on payday loans fresh in mind. Those establishments that use post-dated checks have a built-in security measure as well. If Nevada FCU truly wants to help their customers, they would be wise to keep this in mind and perhaps follow a proven method. That way, the reported $75,000 in payday lending losses they’ve suffered in 2009 through July would likely be much less, if not in the black. Writing things off as a loss hasn’t helped the overall economy, has it?
The National Credit Union Administration supports payday lending
Done right, payday lending works for both the responsible consumer and the lending organization. Credit unions see part of the puzzle, but they are still unwilling to go all the way. This is clear in their PR efforts regarding payday lending. In a recent letter, the National Credit Union Administration claims that they can “enhance their members’ economic well-being” with products related to payday lending. They wouldn’t offer products if they weren’t financially lucrative for credit unions, so I imagine there’s been a misrepresentation of information here. Perhaps this is another way to feed a smear campaign against payday lending. It’s the “payday lending isn’t financially feasible for lenders” angle. It simply isn’t true if payday lending is done correctly.