ALEXANDRIA, Va. – A broad coalition of consumer groups called on NCUA this week to encourage credit unions to expand affordable overdraft lines of credit, in lieu of overdraft fee loans they say skirt NCUA’s 18% interest rate ceiling.

“NCUA should also encourage credit unions to offer affordable overdraft lines of credit and to stop circumventing the 18% interest rate cap through unaffordable overdraft fee loans,” wrote Americans for Financial Reform, in a comment letter on NCUA proposal to amend its payday loan rules.

“Too many credit unions are making unaffordable short term loans by authorizing overdrafts and charging high overdraft fees,” wrote the coalition. “Reining in those abuses will do a lot more to encourage the development of affordable small loans and overdraft lines of credit than will tinkering with the (payday) loan rules.”

“Credit unions,” wrote the group, “have little incentive to offer alternatives when they are making so much money off of overdraft fees.”

The coalition includes Consumer Action, National Community Reinvestment Coalition, U.S. Public Interest Group, Woodstock Institute, Consumer Federation of America, and the credit union-backed Center for Responsible Lending, as well as 50 other consumer advocacies.

The group also urged that NCUA not raise the maximum application fee of $20 and lengthen the maturity for short-term loans to longer than 180 days. NCUA, they wrote, should allow longer-term installment loans of up to a year under the current 28% cap. “Longer term loans are both more affordable for members, with smaller installment payments, and also generate more interest for the (credit unions).”


Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.