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Credit unions to get into short term lending game

Jun 08, 2011 Todd Milner

While many people use credit unions as an alternative to traditional bank lenders, in recent years the institutions have become a player in a different financial sector, short-term financing. The Washington Post reports that thanks to relaxed federal regulations, many credit unions have been getting into a game once played primarily by short term lenders. Unlike traditional loans, which can only charge a limited amount of interest, the rules regulating short-term loans are looser and allow the financial institutions to market to a different sector of the population. The National Credit Union Administration, which overseas rules for industry firms, has been doing its part to encourage the behavior of the new institutions by raising the annual interest rate limit to 28 percent from a previous cap of 18 percent for those engaged in the short term loan transactions. The NCUA has put certain restrictions on this, including not allowing a single person to take out three of the loans at the same time within half a year time period and making them give borrowers at least one month to pay back the money. The head of the Administration, Debbie Matz, said that the regulations put in place would make sure that no customers were negatively affected. She said that the rules had been thought about long and hard and that no one would be taken advantage of as a result of the new allowances. "We spent a long time trying to do this in a way that would work for members and for the credit unions and not be predatory," said Matz in an interview with the newspaper. Some aren't so sure that the stipulations go far enough and fear that consumers could be taken advantage of after all. "They are promoting these loans as short term alternatives, but they are not really alternatives; they are egregious short term products," said Linda Hilton, a community activist in Salt Lake City, in an interview with the news provider. "We look at it as a moral lapse of credit unions." Credit union professionals made other headlines recently when they announced plans to meet in North Dakota. The Credit Union Association of the Dakotas event will be held in Fargo, where industry professionals will discuss the sector's changing landscape. Speakers will include Bill Cheney, president and CEO of the Credit Union National Association, the largest group of its kind in the nation.