Credit unions once offered short-term, unsecured credit to their members, but “somewhere along the way credit unions decided small loans were unprofitable and walked away from them. So the payday lenders came along, recognized a niche market and need, and learned that small, short-term loans could be made profitably.”

“Payday Lending: The Credit Union Way” by the Credit Union National Association Lending Council & National Credit Union Foundation/REAL Solutions(R), looks at the history of the payday loan product, customer demographics and offers guidance to credit unions who offer payday loan alternatives.

The white paper finds:

• Payday lending customers are capable of making rational decisions
• 15-25% of credit union members use payday lenders, credit union employees are also likely customers
• Payday loans can be cheaper than the alternatives, including credit union “courtesy pay”
• Credit unions can exclude application or participation fees in their APR calculations for payday loans. Fees are charged even if credit application is denied.
• Consumer groups fail to recognize that banning payday loans does not eliminate the need for short-term credit
• Credit unions can use varying strategies to mitigate risk