Payday loans typically come with very high annual percentage rates and are generally due in one lump sum, often on the date of the borrower's next paycheck. As a rule, the lender does not take into consideration the borrower's ability to repay the loan when it's due.

These are high-cost loans of last resort, but there is an alternative. Over 450 Federal Credit Unions offer Payday Alternative Loans (PALs) which have a capped interest rate and allow a longer repayment window.

The 50 credit unions that granted the highest amount ($) in PALs in 2023 are listed on page 5 of this week's Jumbo Rate News. If you or someone you know is considering a Payday Loan, we would suggest considering these instead.

Over 450 Credit Unions Offer Payday Alternative Loans

It’s official: On Thursday, May 16th, the Supreme Court ruled (7-2) that the funding structure of the Consumer Financial Protection Bureau (CFPB) is, in fact, legal.

A previous ruling had already granted the CFPB authority to issue a payday lending rule, which it did. That rule was on hold pending the result of this ruling. While payday lenders say they will still fight, the CFPB appears ready to firmly embrace its authority and unleash a number of new actions.

The rule that had been shelved pending this decision will prohibit payday lenders from attempting to make a third electronic debit from a borrower’s account after two initial attempts have failed. Each attempt may result in a new insufficient funds charge to the borrower, and at potentially $25 or $30 a pop, those can add up quickly.

To demonstrate, we chose a payday lender randomly online. We will keep the name to ourselves, but assume that most are quite similar. We’ll just refer to it as Payday Lender.

According to its website, this Payday Lender will issue payday loans from $100 to $1,000. Based on a term of 14 days, the borrower is first subject to a transaction fee of 10% of the requested loan amount plus a $5 database verification fee. Assuming we are requesting a $500 loan to get us through to the next payday, this particular “Loan Fee” would be $55, but that does not include interest.

The annual percentage rate (APR) for this specific lender is 286.79%. That adds another $55 in interest, so the total cost for borrowing $500 for 14 days in this scenario is $110.

That, of course, assumes your payment is made on time and doesn’t bounce back. If you don’t have the funds to pay back the loan in 14 days, you could get trapped in a never-ending cycle of fees: insufficient funds fees from your financial institution and late fees from the payday lender.

These loans are geared for people who think they have no other place to turn. We want to let them (you?) know, there is an alternative.

Over 450 federally-insured credit unions offer what’s called a “Payday Alternative Loan” (PALs), designed to keep borrowers away from these predatory lenders. The average PAL is just over $1,000 and the interest rates range from 0 to 28%. That’s it.

We have listed the 50 credit unions that granted the most PALs in 2023 on page 5. We’ll examine a few here.

4-Star Digital FCU (DCU), Marlborough, MA has been around since 1979 and serves more than 700 companies and organizations. It boasts more than 1 million members scattered across all 50 states and is the largest credit union in New England. It is perhaps no wonder that DCU has granted the largest amount in what it calls “Quick Loans”, its PAL version.

Anyone who has been a member of DCU for at least 6 months can apply for a Quick Loan  in amounts from $200 to $2,000 and for up to 12 months. The posted rate for these loans is 17.99%; the estimated monthly payment is $91.68 per $1,000.

Number 2 on the list, 5-Star Mountain America FCU, Sandy, UT, first opened its doors in the 1930s. Its members hail from Salt Lake County and Duchesne County as well as  specific census tracts in Wasatch and Uintah counties. In addition, employees and volunteers from select employee groups are eligible to join.

Mountain America granted 15,002 PALs last year worth a total of $14.316 million. According to its December 31, 2023 call report, the interest rate was 28%. (We put that caveat because, the rate may vary based on the borrower’s credit record.)

Exactly half way down the list on page 5, you will find 5-Star AllSouth FCU, Columbia, SC. Established in 1960, AllSouth FCU has a community charter that encompasses Columbia, Orangeburg, all the way to Sumter counties in South Carolina. AllSouth granted over 2,500 CashPlease® loans in 2023.

CashPlease® loans are for amounts up to $1,500 with a reported interest rate of 21%.

A little bit further down the list, you will find 4-Star Rockland Employees FCU, Spring Valley, NY. With assets of just $55.862 million and fewer than 8,000 members, it is one of the smaller institutions listed.

Established in 1962, Rockland Employees FCU has a long list of eligible groups in and around Rockland County, New York. This credit union has several PALs to choose from:

Name	Term	Amount
Loyalty Loan	12 Months	Up to $1,200
Birthday/Emergency	6-12 Months	$300—$1,000
Cash in a Flash	6 Months	$750

Both Rockland Employees and Mountain America have low-income designations (LICUs), as do the majority of credit unions listed on page 5. With this designation, the credit union is able to apply for regulatory approval to offer accounts to “non-natural persons” regardless of membership status. That means a business, financial institution, school, church, condo association, etc., may be able to open a CD at these credit unions.

We are considering adding some of these credit unions to our rate surveys and on our rate pages. Email cjervey@bauerfinancial.com with your thoughts on that idea, please.