Doing What We Preach Everyday
January 6, 2009
Myth: Self-Help attacks other lenders for using predatory practices that it employs.
Fact: As a community development lender, Self-Help offers responsible loan products at fair rates. It seeks to live up to the standards pushed for in its advocacy work.
Self-Help Credit Union has grown in the past several years as a result of strong demand for small-business loans and homes loans in North Carolina, primarily in disadvantaged communities that are underserved by mainstream lenders. Here are the lending practices we employ:
Mortgage Lending: Virtually all Self-Help mortgage loans are fixed-rate loans made to borrowers who do not fit conventional lending guidelines. These mortgages are priced substantially lower than other subprime mortgage loans, carrying a 1% origination fee and no private mortgage insurance. Self-Help has been a subprime mortgage lender for 25 years, but unlike many subprime lenders it does not charge prepayment penalties, and has maintained the strong underwriting guidelines that others abandoned (e.g. documenting income and the borrower's ability to repay their loan). Additionally, Self-Help gives borrowers the lowest rate they qualify for; it does not permit its loan officers to increase the rate in exchange for a kickback (yield-spread premium). In fact, if a loan applicant can qualify for a lower-cost conventional mortgage loan, Self-Help tells them so and refers them to local banks.
Overdraft Loans: Self-Help does not provide fee-based overdraft loans, but instead offers customers an overdraft line of credit that is capped at a 16% annual percentage rate of interest. Self-Help has been publicly and equally critical of credit union fee-based overdraft loan programs as it has been of banks' programs.[i]
Payday Lending: Self-Help has never offered payday loans and does not benefit from CRL's advocacy work in this area. It opposes 400% APR payday loans because they do significant financial harm, especially to low-income families.[ii] Since payday lending has been outlawed in North Carolina, the bulk of small consumer loans are made by financial institutions and consumer finance companies already doing business in the state.[iii] Contrary to payday lending industry charges, Self-Help cannot profit from the shutdown or impose rate caps on payday lending in any state.
[i] Eric Halperin and Peter Smith, Out of Balance: Consumers pay $17.5 billion per year Center for Responsible Lending (July 2007). Available at http://www.responsiblelending.org/pdfs/out-of-balance-report-7-10-final.pdf
[ii] Uriah King, Leslie Parrish, Ozlem Tanik. Financial Quicksand: Payday Lending Sinks Borrowers In Debt Center for Responsible Lending (November 2006). Available at http://www.responsiblelending.org/issues/payday/reports/page.jsp?itemID=31101660
[iii] North Carolina Consumers After Payday Lending: Attitudes and Experiences with Credit Options. University of North Carolina Center for Community Capital. (November 2007). Available at http://www.ccc.unc.edu/documents/NC_After_Payday.pdf