By Chris Morran
Loans from federal credit unions are currently capped at 18%, though some qualifying short-term loans can go as high as 28% (plus a $20 fee). These numbers are far below the standard three-digit APRs you see on payday loans, but a small number of credit unions are still figuring out ways to hook customers up with these questionable, high-interest loans.
In 2010, the National Consumer Law Center alerted the National Credit Union Administration — the federal agency that regulates and charters credit unions — to 58 unions that were getting around the established usury cap, mostly by tacking on fees that weren’t technically part of the APR, or by referring account holders to payday lenders (or credit union service organizations) who use the unions’ name and brand (and presumably paying finders fees to the unions) in setting up loans that fall outside of the NCUA’s purview.
Following that 2010 report, 52 of the 58 credit unions put an end to the practice, but a small number of unions persist in making, or allowing their names to be involved in, short-term loans that charge triple-digit interest to borrowers.
“The vast majority of credit unions offer responsible loans to their members,” writes the NCLC in its letter [PDF] to NCUA Chair Debbie Matz. “Unfortunately, a few credit unions threaten to taint the rest of the industry by offering predatory loans to their members.continue reading »