Banks Take a Hint from Credit Unions

Banks may finally be forced to offer reasonable interest rates on consumer loans and credit cards. 

Since the beginning of the year, millions of credit card customers have been hit by rising interest rates, many from lenders who have received billions in government bailout money. 

Vermont Senator, Bernie Sanders, has proposed a bill which would set a 15% cap on the interest rate for consumer loans. Currently, there is no nationwide usury law which regulates bank consumer loans, and consequently, rates have soared to almost 30% from financial institutions like Citigroup. Rate increases are also evident from Bank of America, JP Morgan & Chase, Capital One and more. Credit Card defaults are quickly rising to a record 10% but banks have not lowered their rates to balance the issue, they seem to be cashing in on the economic downturn. 

If Sander's bill passes, banks will be forced to follow in the footsteps of the National Credit Union Association (NCUA) by capping interest rates at 15-18%. The rate cap has not impaired federally chartered credit unions, like Tropical Financial Credit Union, in their ability to continue lending - even in these tough economic times. 

Sanders believes that even though 15-18% is enough to cover the lender's risk in offering a loan, the banking industry will lobby heavily against this radical bill. However, "the American people are disgusted with the financial industry. They want change." Sanders wonders if it is in fact ethical to charge 30% interest rates, when credit unions are thriving and staying under 20%. 

Lending is Up, No Thanks to the Bailout

Lending is up, but it's not an effect of the bailout. Smaller financial institutions are driving the lending market singlehandedly. 

In fact, lending has grown more slowly among financial institutions who received a bailout than those who were uneligible. Some of the largest banks (Bank of America, JP Morgan Chase and Citigroup) have even reported declines in loans given on their latest financial statements. 

Smaller banks and credit unions have boosted lending in part by diverting business away from larger financial institutions which offer fewer lending options and higher rates. 

People are looking toward credit unions and small, local banks when they are unable to finance what they need at a larger institution. 

Smaller, local banks and credit unions are able to understand local markets and react to the financial crises occuring in places like Florida and Nevada. Larger banks tend to treat all communities the same and do not offer reasonable lending options in states experiencing financial troubles. 

Obama Tightens Restrictions on Bank Bailouts

Obama is offering a fresh approach to the all-familiar bank bailouts. He aims to tighten the oversight of banks and make sure any aid given is not used frivolously. 

Obama noted that many banks, after recieving billions of dollars from the government, immediately renovated offices instead of putting the money toward providing consumers and companies with credit. 

Congress has cleared the Obama administration to tap into the second wave of $350 billion dollars in an effort to stabilize the financial industry. It is clear that the first $350 billion was ineffective and spent unnecessarily. Hopefully, with adequate oversight and restrictions, this second wave will be enough to stimulate the industry and get banks lending again.

Free yourself from your banking fears, borrow from Tropical Financial Credit Union. We offer lower rates than major banking institutions and we are still lending!