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Huff Post: Matz Explains How to Turn the Payday Lending Anchor into a Lifeline
Tuesday, January 7, 2014 6:55 AM

In a Jan. 6 blog post, National Credit Union Administration Chairman Debbie Matz explained to Huff Post readers that not all payday lending is predatory lending.

“Especially in this difficult economy, there is a significant need for small-dollar short-term credit, as evidenced by the fact that more than 12 million Americans take out payday loans every year, spending more than $7 billion on principal, interest, and fees,” Matz notes.

Matz told readers that she believes there is a workable solution to providing short-term credit in a way that protects consumers and is viable for financial institutions.

“Tucked away in a corner of the Dodd-Frank Act is language authorizing demonstration programs (overseen by the Secretary of the Treasury) to provide low-cost, small loans that serve as an alternative to payday loans,” she said in the Jan. 6 blog post. “At NCUA, we took this authorization to establish a new rule and a new program that allows and encourages credit unions to create the right type of short-term small loans.”

What does this reasonable alternative to high-cost payday loans include? Matz explained that it allows borrowers to access between $200 and $1,000, provided they have been members of the credit union for at least one month. It caps interest rates at 28 percent, a number that is a fraction of what predatory lenders charge, but high enough for credit unions to account for the higher risk associated with making this type of loan.

“Unlike many payday lenders, who use exorbitant application fees to make money and offset risk, our program caps the application fee at $20, an amount that we feel is sufficient to recoup the actual cost associated with processing the application,” she continued.

To read Matz’ Jan. 6 post, please click here.