Banks help CU serve low-income consumers

CFPB payday loan report2
CFPB issued its report on payday lending in March.

July 21, 2014 – A newly chartered federal credit union in South Carolina that is hoping to target low-income consumers in the area is receiving a financial hand from six surrounding banks as the credit union ventures into the small-dollar loan market.

American Banker reported that the banks, including Bank of America and TD Bank, have provided “financial and administrative support to help CommunityWorks Federal Credit Union open in Greenville, S.C.” The article stated that the single-branch credit union expects to be able to serve low-income consumers from referrals it receives from the banks.

Mike Coggin, a regional president at South State (SSB) – one of the banks in the area – was quoted in the article: “We just can’t afford to do a lot of $5,000 loans,” he said. “The economies of scale aren’t there. These are folks we can’t serve.”

Credit unions are authorized by NCUA to offer small-dollar, short-term loans to members. NCUA rules set strict limits on the amount, duration and number of loans that can be provided to a single member at any one time. NCUA says this type of lending grew to $27 million last year, up 27.6 percent from year-end 2012.

CFPB says it will be working to better regulate this type of lending. It released a report that noted four out of five of these loans are rolled over or renewed within 14 days. CFPB began accepting complaints about payday loans last year.

NAFCU is encouraging CFPB to provide credit unions as much flexibility as possible in providing members good loans that are less costly than what they could get elsewhere.

 

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