Credit unions have a naturally great reputation for being a reasonable financial institution with fair rates and security of funds. So it’s only natural that they would look to expand their services and payday loans are one way to do that.Credit unions are also still recovering from the financial pain the banks went through in recent years, though not to the same extent.
However, they may not be the best fit for those looking to get a short-term or payday loan. Payday loans are a $40 billion a year industry, so grabbing a chunk of the short-term loan industry makes sense for a struggling financial institution.
Last September, credit unions were able to raise their annual interest rates on payday loans from 18% to 28%, about in line with other payday lenders. In order to offer that rate, the credit union must limit repeat loans with a 6-month period and give at least a month to repay the loan. But, they can also charge application fees for each loan, as much as $20 for a $200 loan, which amounts a 100% interest rate.
By offering these sorts of short-term loans outside of the federal loan programs, they are able to get around the restrictions that would prevent them from giving such high rates and fees. They are able to add fees at any level, as well as higher interest rates, thus making them the same or worse than your average payday lender.