There are few organizations on this planet with less political capital right now than the American Bankers Association. Amazingly, though, they have still decided that the time is right to continue their attacks on credit unions.
I stumbled upon ABA Senior Economist Keith Leggett's "Credit Union Watch" blog today, which held no punches in responding to USA Today's story about credit union payday alternatives. Upon first glance, Leggett makes an excellent point - credit unions are supposed to, as he puts it, be "an alternative to usurious money lenders." He points to payday alternative loans at Kinecta FCU and Nevada FCU that amount to an annualized 275% and 455% APR, respectively.
Written that way, any reader should be disgusted. That's Leggett's plan.
Credit unions are not-for-profit financial cooperatives owned by members and directed by democratically-elected volunteers. While we serve members of all income levels, we are particularly adept at helping those who have been shut out by the rest of the financial services world - people of modest means. This is precisely the target market of the "usurious money lenders" Leggett describes. The moral dilemma many credit union boards are faced with is: how do we help this segment avoid the payday lending trap (high fees, high interest rates, terms that disallow borrowers from ever getting rid of their debt), while protecting the credit union's (read: members') assets?
Many credit union boards have decided that offering lower cost payday alternative loans is in line with the credit union mission of people helping people. What I personally love about a lot of these programs is the unique ways they are addressing the issue. North Carolina State Employees' Credit Union, for example, has been amazingly successful at reaching out to this population with small, short-term loans (maximum 31 days and $500) at 12% APR. A key component of these loans is a 5% automatic deduction of the loan amount that is placed in the member's savings account. So, through time, the borrower isn't digging him/herself deeper in the hole. Conversely, the borrower is building savings with which the cycle can be broken.
That is looking out for the little guy, Mr. Leggett. That is a conservative credit union doing a remarkable job of reaching out to those who need a credit union's touch more than anything. These are the exact same people who the financial institutions you represent have either fleeced for every nickel and dime they could squeeze out of them, or shut out of the system completely. All of this while nearly screeching the entire world economy to a halt and requiring bailouts bigger than the GDPs of several continents.
I won't take one moment of anyone's time trying to defend Kinecta FCU or Nevada FCU, especially since I know no more about their products than what I've read in USA Today and the NCLC Report. I get even more disgusted with poor credit union behavior than I do with bad bank behavior. We expect it out of the latter. We expect much better out of credit unions.
And while I cannot stand people who justify bad behavior with worse behavior, I must point out the amazing timing of Mr. Leggett's comments. On the same day of his post, we learn that Bank of America was fined $33 million for misleading investors about $3.6 billion in Merrill Lynch bonuses paid to failure executives that needed $10 billion in taxpayer bailouts, California banks have cost the FDIC $15 billion, and Colonial BancGroup gets raided by the feds. Maybe you could have waited a day or two...or is there even worse news on the way?
There are bad apples in the financial services world, Mr. Leggett. Unfortunately, there are even a few on my side of the discussion. You have a lot of problems to fix on your side, however, before anyone anywhere will be able to come close to forgiving the banking industry for the nearly irreparable harm you have caused.
(PS...I would have written this on your blog, but you don't allow comments. That's not a blog, Mr. Leggett.)