Idaho banks will not offer alternatives to payday loans

Inside Subprime: July 24, 2018

By Lindsay Frankel

Despite recent recommendations from the Office of the Comptroller of the Currency (OCC) and the National Credit Union Association, banks and credit unions do not plan to offer alternatives to payday loans in Idaho. The OCC encouraged banks to provide short-term, small-dollar loans to consumers to provide safer, lower-cost access to credit for low-income individuals and to give banks access to a $9 billion industry.

Payday loans in Idaho are particularly popular among low-income individuals who lack access to traditional banking services. The most recent data from 2015 shows that 7 percent of U.S. households did not have a member with a bank account and an added 19.9 percent of U.S. households were considered “underbanked,” according to the Federal Department of Insurance Corp.

Payday lenders in Idaho fill a gap in the market because they provide small dollar loans for people with bad credit. But they also charge borrowers exorbitant interest rates and fees that can make it difficult for low-income families to get out of debt. Payday loans in Idaho cost borrowers an average annual interest rate of 582 percent, one of the highest in the nation, according to Pew Charitable Trusts.

The number of licensed payday lenders in Idaho has been declining since 2014, according to the Idaho Department of Finance. But in 2016, there were still 279,459 payday loans issued. Of those, 131,528 were extended beyond the original loan period. That’s because interest and fees add up and can make it difficult for borrowers to pay back their loans on time.

Still, banks and credit unions in Idaho aren’t planning to provide services for people who typically use payday loans. Representatives from both U.S. Bank and Idaho Central Credit Union said they would not be issuing short-term loans to individuals with poor credit. JPMorgan Chase didn’t comment on the issue.

Some credit unions already offer alternatives to payday loans, according to Lynn Heider of the Northwest Credit Union Association, though she was unable to specify which credit unions offered these alternatives. Some services already offered by financial institutions don’t quite fill the same need that payday loans do. Wells Fargo features personal loans, but the minimum loan amount is $3,000, which is a much higher initial balance than people get with payday loans.

Trent Wright of the Idaho Bankers Association said, “If banks and other licensed providers are not able to offer short-term credit, consumers will be forced to meet their needs through ‘informal’ sources of funds.”

Yet most banks and credit unions in Idaho and around the nation have not made commitments to follow recommendations from the OCC bulletin. Dennis Shaul, CEO of The Community Financial Services Association, which advocates on behalf of the payday loan industry, invited competition from banks and credit unions, but also expressed in an opinion piece that these financial institutions would likely find payday loan alternatives “unprofitable and unsustainable, due to the high cost and risk of offering these products.” Consumers may not be able to turn to banks to meet their needs, but they should explore other alternative options before taking out a risky payday loan.

To learn more about payday loans in the United States, check out these related pages and articles from OppLoans:

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