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It’s About The Members, Remember? (Payday Lending)

Update 8/31/18: A reader graciously made me aware of an NCUA program empowering credit unions to provide payday lending alternatives. It is used by a bit over 500 credit unions and discussion is invited from institutions on how to evolve it in the future.

See more direct from NCUA. Looks like a great opportunity to keep your members out of the payday lending debt cycle.

Originally published on CUInsight.com

This post is a continuation of “Your Mission Demands It“.  We’re focusing on payday lending and how its very existence should sadden all credit union supporters.

Credit. And. Union.

Your credit union members are everything to the institution.  Literally.  Without them, you’re not a credit union.  You’re a credit.  With no credit.  So I think it is important to bring to light the topics which are affecting members that others might have missed.  And then, how you can help fulfill your mission…you know, serving your members (even those who may not yet have a credit union relationship)!

Today, let’s have a little talk about payday lenders.  For many people in this country, they’re the closest thing they have to a bank.  Of course, you know the cost of such an arrangement. Or maybe not.  Spoiler: It’s substantial.

Some users understand this, unfortunately, they don’t have much of a choice, or they prefer the instant exchange of check for cash. It’s a big industry, with $38.5 billion in volume in 2009 (yeah, I know, I couldn’t find a newer figure…assistance?).

As of 2017, the industry collects $9 Billion (that’s billion with a B) in fees each year.  What does your credit union charge for depositing a check? And for cashing it? Not a gazillion dollars?  That’s what I thought.

Financial Insecurity Costs

Needless to say, payday lenders are commonplace for people without financial security. You read studies which mention them as living paycheck-to-paycheck. This means all their necessities are paid in the moment, and they hardly ever get ahead of debts.

Remember how I’ve said it’s expensive to be poor? Payday lenders provide the service of speed. When rent, electric, water, and car payments are all due, while the refrigerator and pantry are both empty, money from one check buys another week/month of security.

Getting that money as quickly as possible is essential. At that point, giving up some in the form of interest rates or fees is a small price to pay to keep the water running.

Not surprisingly, usage of payday lenders is rare for those with more financial security. If you have disposable income and savings, and a place your money can reside, why pay someone else massive interest rates to get only some of it in cash?

Piling the Expense. Over and Over.

A person who goes to payday lenders is likely to use them repeatedly. The average is 8-10 transactions per year, where 80% of them are re-borrowed within a month, with 25% building fees greater than what they received in credit. These can be at over 900% APR.

What’s your ceiling unsecured loan rate? Anyway, this isn’t illegal. Well, it is for members of the military, as Congress banned them (for being too financially dangerous) during the George W. Bush years.

But for everyone else, all’s good here. And these companies aren’t considered predatory lenders. But not for the reasons you may think.

Pre-2017 CFPB: The Actions

Remember the CFPB? While under the leadership of Richard Cordray (pre-2017), they looked at payday lenders to better understand if this rapidly growing industry was harming its customers. In October of 2017, they released a rule to help people avoid falling into payday lender debt traps.

It required lenders to determine upfront whether people could afford to repay their loans. Along with a number of other consumer-safety focused policies, it took 5 years to develop, using insights from more than 1 million public comments.

For the unbanked, it was good policy. In the case of consumers who truly needed this service, it presented an enormous opportunity for credit unions to step in and offer fair services for these people.

Post-2017 CFPB: The Inactions

But 2017 came around and Cordray was out and Mick Mulvaney was in. This rule was immediately scrapped. Entirely unrelated, Mulvaney took over $60,000 in campaign contributions from payday lenders.

He also dropped an investigation into one of the largest payday lenders that had been ongoing within CFPB for years before his entry. They also were Mulvaney campaign contributors.

Insulated from investigation or regulation, the payday lending industry is booming. Which means more people who can’t afford to pay are now paying outrageous fees to access their money. They’re just like the credit union movement, except without all of the core principles.

Credit Unions Speak Out…Right?

So, in pursuit of their missions, credit unions have been quick to speak out in support of the unbanked and the prior efforts of the CFPB, right?

Oh, you don’t hear anything, either?

I have heard a lot of grumbling over CFPB regulatory compliance challenges. And you’re right, most credit unions should not be subjected to the same regulatory burden as JP Morgan Chase.

But where is the speaking out for people whose lives are dictated by the debt they accumulate with these payday lenders?

Credit unions can be an enormous voice for “the little guy”. Besides it being the right thing, people who use payday lending are probably enormously profitable potential members of your credit union. And you’ll never hit them with 900% APR.

Your Mission Demands It

Originally published on CUInsight.com

Why does your credit union exist?

Go ahead and think about it for a moment. I’ll wait.

Is it to provide safe storage and management of your members’ money? To help those in troubled financial situations? Maybe it’s to create a community of similarly-employed citizens.

Whatever your reason, it should matter. If your purpose for existence is just another version of Wells Fargo’s mission, then why even bother? (For reference, this is their vision statement: We want to satisfy our customers’ financial needs and help them succeed financially.)

So what makes your credit union different? This seems to get lost in the day-to-day of marketing pushes, car sales, core conversions, and more. It’s a question only you can answer.

Here’s an idea:
We exist to provide top-of-class financial services, education, while offering a unified voice in support of our members’ best interests. 

You probably aim to achieve the first two parts today. Ask yourself: How are your financial services? Would you bank there? Even better, would you encourage friends and family to do so? (Then why aren’t you referring them?!) Financial education is crucial to every member, yet few have the knowledge needed to maximize their savings potential. I’m sure you do what you can to help educate them, right?

And then there’s the last part: “Offering a unified voice in support of our members’ best interests”. This is where it gets fun.

Ask a credit union or industry trade group to support the tax exemption and you get cheers all around. They’ll “hike the hill” 5000 strong to demand “common-sense regulation” that reduces the time and financial burdens on credit unions large and small (but primarily the latter). If you are fighting for survival, then you’re automatically fighting for your members, right?

Not. Even. Close.

I support the tax exemption for credit unions. I also agree treating the vast majority legislatively the same as a national bank is unnecessary. Theresa in compliance cannot possibly provide the same level of, well, anything, that the 200-person team at Bank of America can (and should) offer. Of course, we’re getting sidetracked. I said, “members’ best interests”, not credit unions’. And it’s where we are doing a disservice to 1/3 of Americans.

The next few posts will dive into, issue by issue, areas where credit unions have a responsibility to speak out in support of their members. You’ve already seen my take on Net Neutrality (and my interview in CUtoday; many thanks to them for the focus!). Next up: The allure of Free. Then payday lending. And taxes. With a dash of de-regulation for extra flavor. Because what you don’t have to do can still hurt your members.

Credit unions and their lobbyists love to talk about how they are representing a large portion of America. It’s about time they use their voice to improve peoples’ lives.

$$$ For Charity, Love for Credit Unions

In a partnership between CUNA and Love My Credit Unions (CU Solutions Group), good deeds and great rewards abound. Know how I’m always talking about getting your efforts out there? Well, if sharing to CU Social Good isn’t enough on its own, here’s a reason your entire community can support: Big money for local charities.

Say hello to Share the Love Campaign (They call it the 1st annual, but I’m sorry, the first year doesn’t get “annual” billing. Next year, no problem!). The love being shared is that of your credit union, its members, and community contributions made by each. Yes, we know you’re giving back. Here’s a chance to tell that story. With video!

As part of the Share the Love Campaign, credit unions are encouraged to create short video clips telling their charitable story. Make them funny. Make them emotional. Make sure they are under 90 seconds. On October 1, every video will be posted. Then it’s time to vote! Members, charity supporters, and bank customers (yes, everyone) can choose their preferred stories. So make yours engaging!

Winners will be separated by asset size, with the smallest award being a $10,000 donation, and a new set chosen each month (through December).

You may think large credit unions and charities have an advantage, and you’d be right, but since everyone sees all posts, do your best and it could be amongst the finalists! Tell your members, your community…anyone! Because what’s good for your credit union is huge for your community.

Which sounds a bit like the credit union mission.

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