Credit union payday lending options provide local options that can be better than payday lending alternatives.
A University of California professor has released a study questioning the value of credit union payday loan alternatives, Are Credit Unions Viable Providers of Short-term Credit? Yet, while it makes an interesting soundbite, a closer analysis of the research methodology and findings reveals several problems with the industry-wide conclusions being drawn. Consider the source of the data cited in the study:
- The credit union data was based on a graduate assistant calling 46 randomly selected credit unions, and talking with a loan officer or a branch manager. How relevant is this sample? The study states that 7 of the selected credit unions didn’t offer loans of any kind because the credit union was too small. Only 10 of the branch managers supplied an answer to the question; “Why doesn’t your credit union offer a payday loan”, of whom 6 said it was too risky.
- The consumer survey, which is used to support a conclusion that consumers prefer standard payday loans over credit union alternative, was based on responses from 40 consumers.
The credit union examples are compared to a single payday lender “average” fee. How about comparing the credit union data to the top 5 or top 10 payday lender fees? The “average” fee of $15 per $100 cited is fairly low. In California alone, payday lenders can charge up to $17.65 per $100. In Virginia, the fee for $100 shown on Advance America’s website (the nation’s largest payday lender) is $26.40. Most payday borrowers are not likely to be comparing fees online before going to an outlet, and states with payday lending restrictions tend to have lower fees.
The reality is that credit unions’ payday lending options provide local options that can be better than payday lending alternatives. A comparison of the fees charged by Langely FCU’s QuickCash and the local Hampton Roads, VA alternatives would be more insightful.
However, that won’t prevent the bank lobby from using these “facts” for years to come. I’m sure it will be cited in congressional testimony at some point in the future. Credit unions need to continue to watch out for these types of studies which don’t provide a full picture and counter with their own data.