While Utahns pay $12 to $35 to borrow $100 from "payday lenders" for two weeks, some people in North Carolina can do that instead for a mere 46 cents.
The North Carolina State Employees Credit Union — the second-largest credit union in the nation — decided to offer its members payday loans at just 12 percent annual interest, compared to the 500 percent or more usually charged in Utah. Some Utah institutions are examining whether they can do the same.
Leigh Brady, senior vice president of that North Carolina credit union, explained why it decided to do its own cut-rate payday loans.
"A lot of our members had trouble with payday loans. In fact, on paydays, we notoriously had payday lenders lining up to cash postdated checks that members had given them, which would usually bounce. Payday lenders were very prevalent and charged upwards of 400 percent interest," she said.
"The poorer areas are where payday lenders were really taking advantage. People would get caught in a never-ending borrowing cycle. Somebody had to step in and help these folks, and we did," she said.
The program it developed allows credit union members to take out payday loans of up to $500 at 12 percent annual interest. It also requires that 5 percent of the amount loaned be put automatically into a "salary advance" savings account.
Brady said the savings account allows borrowers to eventually build up enough reserve to pay off their payday loans. Once money is withdrawn from that savings account, a member cannot obtain another payday loan for six months.
Brady said about 52,000 of her credit union's 1.25 million members currently have salary advance savings accounts open — and the payday loans have been very popular.
"We have not lost money on this program," she said, adding the amounts charged were designed to cover costs.
Frank Pignanelli, attorney and lobbyist for the payday lender industry's Utah Consumer Lending Association, notes the credit union has many other products to produce revenue and is designed to be nonprofit. He said traditional payday lenders must make money to stay in business and, therefore, must charge high interest on their unsecured loans to people with no credit.
Scott Simpson, president of the Utah League of Credit Unions, said whether to offer low-cost payday loans has become a hot topic for research and discussion in that industry and at its conventions. He is not aware, however, of any credit unions in Utah that currently offer them.
He noted it might be easier for huge credit unions with a broad financial base like the one in North Carolina to offer them, but said others nationally are planning to test some similar programs.
Howard Headlee, president of the Utah Bankers Association, said he is not aware of any banks that offer such products. However, he urges bank customers who run into financial problems to discuss them with their banks. If they have a good history, he said it may be possible to work out a line of credit or other help.