NCUA calls for federal credit unions to keep interest for small loans under 18% cap

Center for Responsible Lending
August 3, 2009

The Center for Responsible Lending applauds the National Credit Union Administration (NCUA) for issuing guidance Wednesday to federal credit unions about payday loans, warning them of reputational and other risks connected with this activity. NCUA notes that fees including participation fees and minimum monthly charges should be counted towards the 18% APR cap.

NCUA notes "…borrowers find themselves in cycles where their loans roll over repeatedly, incurring high fees…NCUA believes this dependence often reflects or exacerbates other financial difficulties payday loan borrowers are experiencing."

Accordingly, the NCUA urges that credit unions allow their loans to be repaid "over a period of months rather than two weeks."  Moreover, NCUA reminds federal credit unions that federal law limits them to 18% APR, a fraction of the cost of the typical payday loan. 

The guidance, if followed by credit unions and enforced by the NCUA, will prevent federal credit union loans from trapping customers in long-term debt as payday loans are structured to do.

In contrast to the standards put forth in the NCUA guidance, payday lenders require full payment in a short timeframe (usually two weeks), which virtually guarantees that customers will need to re-borrow before their next payday. At a typical $15 per hundred borrowed for each transaction, payday loans carry annual rates around 400%.

Many credit unions, including North Carolina's State Employees' Credit Unions already offer small loans with APR's lower than 18%. We look forward to further adoption of these standards. 

For more information: Kathleen Day at (202) 349-1871 or; Ginna Green at (510) 379-5513 or; or Charlene Crowell at (919) 313-8523 or


About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.