Payday Loans have become a popular resource for Americans to get fast cash. And now, an Employee Credit Union has launched its own version of a payday loan.
NC State Employees' Credit Union has introduced a short term loan that has a 12% annual interest rate, a maximum limit of $500, requires borrowers to repay via direct deposit of their paychecks and put 5% of loan proceeds in savings accounts.
The SECU is one of a growing number of credit unions offering their own, alternative payday loan products. Payday lending has become a $40 billion annual business (in loan volume) with more than 22,000 U.S. outlets, according to the Community Financial Services Association of America, and naturally Credit Unions want to seek their share of this market.
Mainstream lenders were initially slow to react, but more than 1,000 of the 9,000 U.S. credit unions now have their own loan products.
According to an SECU rep, short-term loans are the most profitable product, but due to the poor credit quality of borrowers most are break-even or community-service products.
Federal Deposit Insurance Corp. Chairman Sheila Bair had suggested one reason banks and credit unions may have held back from short term lending was to avoid undercutting highly profitable, bounced check protection programs that have become de facto payday protection for some customers — with similarly high fees.
Some state legislatures are trying to push regulations to govern payday loan programs, such as to limit the amount that consumers can borrow and the number of times they may extend the loan.
According to Credit Federal, legislatures need to explore and have other loan programs launched before eliminating or drastically influencing payday loans. Consumers need short term loan products and regulations which my interefere with their availability could create deeper problems, including unpaid or late paid bills which rack-up high interest and can affect other loan abilities, as well as other financial issues such as the inability to affect an auto repair to get to work due to a lack of cash.
What are bad credit people to do when they need cash? Short term, no credit check loans up to $1,500 or more have been a vital, financial asset for many Americans when used responsibly. Legislatures must realize that since there is no low interest, unsecured and guaranteed government personal loan, lenders who are placing their money at high risk by granting cash loans to bad credit people demand an interest rate higher by comparison to secured loans in order to offset their losses, both actual and potential.
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