Las Vegas Sun

November 21, 2017

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banking column:

Payday loan business no golden goose for Nevada Federal

For the past few years, Nevada Federal Credit Union has offered its version of a payday loan, but it hasn’t been until recently that the service has been in demand.

Brad Beal, president of Nevada Federal, said the credit union had learned that several members were using payday loans and decided it wanted to offer something at lower cost, so it designed a service it coined AdvancPay.

“We asked ourselves ... are we helping folks or hurting them?” Beal said. “We do struggle with that question.”

When a member — who has to have a job — takes out a payday loan, he has until his next payday to repay the loan. The credit union offers free financial counseling, although Beal said not many people take him up on that offer.

Beal said the credit union also offers a year to pay off the loan, with the intent of helping its members break the cycle of short-term, high-cost loans.

In the first seven months of this year, the credit union has issued 12,000 loans, amounting to about $8 million, an estimate based on borrowers taking out the maximum loan of $700. A single payday loan costs $60 regardless of whether the loan is for $100 or $700. Also, note that the $60 is an application fee, and doesn’t guarantee that an applicant will get the loan.

You would think that Nevada Federal was just rolling in the dough, charging people a relatively high fee for a small amount of cash for an even smaller period of time — not to mention the ones who were turned down.

Not so, Beal said. There is a fair amount of risk involved in the payday loan “alternative” and the fees offset the losses, and it costs the credit union $55 to service the loan, he said.

Some people haven’t repaid their loans, and if the credit union isn’t able to collect within a few weeks, it writes it off as a loss.

This year, Nevada Federal has already lost $75,000 from defaults.

“It’s not like anybody is profiting,” he said.

In July the National Credit Union Administration reiterated its support of payday loan products — under certain guidelines.

“(Credit unions) can enhance their members’ economic well-being by offering alternatives to payday loans that provide members with short-term credit at fair rates,” the letter said. “These programs should be geared to moving members away from short-term loans and toward more mainstream products and services.”

Obama promises financial reform

In a Sept. 14 address to Wall Street, President Barack Obama said he wants to reform the country’s financial system by the end of this year, calling it the “most ambitious overhaul ... since the days of the Depression.”

He focused on the collapse of Lehman Bros. a year ago and the domino effect it had on the rest of the U.S. economy.

“We will not go back to the days of reckless behavior and unchecked practices,” Obama said, later adding, “We can be confident that the storms of the last two years are starting to break.”

The president called for the creation of a consumer financial protection agency to guard borrowers against disreputable lenders; closing regulatory loopholes that Obama said caused “weaknesses in oversight”; stronger capital and liquidity requirements for banks to ensure they are better prepared for another financial crisis; creation of a resolution authority to dispel the notion that some firms are too big to fail, thereby putting the responsibility on management and not taxpayers; and close the gaps between developed and emerging economies, spreading both the rewards and risks as well as working with other nations to improve their financial systems.

The American Bankers Association, an industry advocate, said in a statement after Obama’s speech that it supports, to a point, the reforms the president is calling for.

“We’re in general agreement of the need for comprehensive reform in the broad areas the administration has targeted,” association CEO Edward Yingling said. “Among the recommendations (the association) is making are to avoid an expansive new bureaucracy for consumer issues that would conflict with the prudential regulator, maintaining the thrift charter and strengthening the resolution mechanism.

The crash of the financial system, Obama said, “was a failure of responsibility ... a collective failure of Washington, the financial industry and across America.”

Recession forces bank consolidation

Capitol Bancorp has announced it will be consolidating four of its Nevada banks.

Black Mountain, Desert and Red Rock community banks and Bank of Las Vegas will be combined and renamed Bank of Las Vegas.

The consolidated Bank of Las Vegas will be led by Capitol’s Nevada regional president, Thomas Mangione, who will serve as the chairman and CEO.

Some of the banks have struggled during the recession, including Bank of Las Vegas.

Of the bank’s net loans, 11.6 percent were considered noncurrent, or 90-plus days overdue, according to a June 30 filing with the Federal Deposit Insurance Corp. During the same period the year before, the bank had just 2 percent in nonperforming loans.

Red Rock Community Bank had 10.5 percent as of June 30, compared with 2.9 percent the year before, according to the FDIC.

Nevada Financial Institutions Commissioner George Burns said it could take 60 days or more for the state and the FDIC to come to an agreement on whether to allow the consolidation.

The regulators are reviewing the banks’ balance sheets and Capitol’s business plan for a consolidated bank.

“There needs to be enough combinations of strengths to balance out the weaknesses,” he said. “In this environment, consolidation makes a lot of sense.”

FDIC temporary increase extended through 2013

The FDIC has extended its deposit insurance of $250,000 for bank accounts through the end of 2013.

The standard insurance is normally $100,000 for individual deposit accounts.

Only retirement accounts that previously had the higher limit will retain the $250,000 limit after the temporary increase expires in 2013.

Nicole Lucht covers health care, workplace, energy and banking issues for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached at 259-8832 or at [email protected]

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