Sarah A. Miller, Deseret News
Linda Hilton, center, of Coalition of Religious Communities, criticizes short-term loans in Salt Lake City on Tuesday.

SALT LAKE CITY — Defenders of the needy went up against Big Money during a Tuesday morning news conference, but the target of their ire was not a retail giant, a sweatshop or even a national bank.

Rather, the Coalition of Religious Communities took on local credit unions, saying short-term loans to which credit unions refer customers look too much like payday loans and have similar detrimental features, such as high interest rates and unrealistic payback times.

Customers usually can receive the loans through kiosks or computers set up in the lobbies of credit union branches. The loans generally last two weeks, with amounts ranging from $50 to $1,000.

"It was very disappointing that they were offering these products," said Cyprus Credit Union member Paige Thornock of Magna. "I would not ever do that, and I hope I'm never in that situation."

Thornock is a volunteer for the coalition, which represents groups such as Islam, Christianity, humanism, Episcopalianism and Mormons for Equality and Social Justice. It fits under the umbrella of Crossroads Urban Center, which also advocates taking the state sales tax off food and ensuring affordable health care and housing.

The coalition referred to a study that looked at short-term loans across the country. Released earlier this month, the report from the National Consumer Law Center points to eight Utah institutions as examples of credit unions that are predatory lenders or that contract with such lenders.

These credit unions and payday lenders lend money on a short-term basis to people who have poor credit but a job and a bank account. The loans are generally due in two weeks, and a set fee is charged based on the amount borrowed.

However, many people who are in dire straits for cash will not have the money to repay these loans in two weeks, so they are forced to take out another loan, according to the report. That leads to escalating interest fees, and loans originally worth a few hundred dollars ultimately cost thousands. Interest rates can reach 500 percent in some cases.

The law center urges financial institutions to loan with a maximum rate of 36 percent, including fees, and to allow either one month per $100 borrowed or six months for repayment.

"I thought credit unions were so you'd have fair stuff for people, both sides," said Dorothy Talbert, a coalition volunteer from Salt Lake City. "They're supposed to be nonprofit. Money shouldn't be holier than people."

In response, Scott Simpson of the Utah League of Credit Unions pointed out that the short-term loans offered by Utah credit unions and their affiliates come at half the rates of payday lenders, though those rates can still top 100 percent. The short-term loans also come with credit counseling and a savings plan, and they are given only to those whose credit is so poor that they do not qualify for other kinds of credit.

"There's this motion about lending being made from the perspective of the borrower and not the lender," Simpson said, adding that both sides need to be considered. "When you extend credit, it comes at some cost."

If credit unions stop making these loans, the individuals who want and need fast access to cash will be driven back to the payday lenders the coalition abhors, he said.

Further, Simpson said, credit unions have an obligation to their depositors to balance risk and cost of credit.

"Higher loss means greater mitigation," he said. "I'm saddened that they have poked us in the eye for trying to create a better product."


Targets of criticism

America First Federal Credit Union

Family First Credit Union

Mountain America Federal CU

Cyprus Federal Credit Union

Alliance Credit Union

Heritage West Credit Union

Southwest Federal Credit Union

USU Charter Credit Union

Source: National Consumer Law Center