Explaining Southern California's economy

Letting credit unions in on business lending

Occupy Protesters March In Downtown L.A.

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Molly Hawkey, who moved her money from a bank to a credit union this week, carries her sign in the downtown financial district during during the the Move Your Money March on what is being called Bank Transfer Day.

Small business! The lifeblood of the U.S. economy! Except when big banks won't lend them money...

Small businesses may soon have another option: credit unions. These non-profits are usually more focused on home loans, car loans, and personal loans. But not entirely by choice. This is from Congress.org:

The debate [in the U.S. Senate] is about whether credit unions should be able to expand their reach into the commercial lending world that is the backbone province of the banks. For years, the banks have successfully fought a behind-the-scenes, rear-guard lobbying campaign to keep the idea under wraps —  but no longer.

A lopsided majority of Senate Democrats (who are customarily the credit unions’ more reliable friends — because they represent “the little guy” and “Main Street” and all that) are ready to vote for Mark Udall’s bill raising the credit unions’ small-business loan portfolios to a maximum 27.5 percent of their assets, up from the current 12.25 percent.

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Expanding payday loans make case for banking the unbanked

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Bank of America is too big to do payday loans, but credit unions and small, regional banks are getting in on the action.

The L.A. Times ran a piece a few days ago about how banks and credit unions are getting into the lucrative but ethically dicey business of payday loans — short-term, high-interest loans that, until recently, were aimed at customers who don't have typical relationships with banks or credit-card issuers. This morning, KPCC's "AirTalk" with Larry Mantle did a segment on the issue.

Payday lending is rife with problems — and the potential for big returns. Here's the LAT:

[M]any people can't repay the loans when they come due. Instead, they simply roll the loans over from payday to payday, or take out new loans to cover the old ones, piling on additional costs that can result in interest charges of 300% or more over the course of a year.

The move by banks into payday lending — or direct deposit advances, as many of them call it — led about 200 fair-lending, consumer, religious and labor groups to write federal regulators last month and call for prompt action to stop "this inherently dangerous product."

"There are people who wouldn't walk into a payday loan store but think that if a bank is doing it, it must be safe," said Lauren K. Saunders, managing attorney with the National Consumer Law Center. "If you take a look at these products from a consumer protection standpoint, they raise serious red flags."

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