The National Credit Union Administration (NCUA) will accept comments until Aug. 3 on the agency board’s recent proposed rule to created a second – and generate input on a possible third – regulatory option for federal credit unions looking to provide small-dollar, short-term loans to their members.
The proposed rule, released May 24 by the NCUA Board and published Monday in the Federal Register, would revise the agency’s rules for payday-alternative loans (PALs I) to create a PALs II option with different terms and conditions. It would differ from PALs I with respect to minimum and maximum loan amounts, number of loans to one member allowed in a rolling six-month period, would have no length-of-membership requirement, and could have longer maturities than are allowed under PALs I.
PALs II would retain features found in PALs I but incorporate four changes, as follows:
- a maximum loan amount of $2,000 and no minimum;
- a maximum loan term of 12 months;
- no minimum length of credit union membership;
- no restriction on the number of loans a federal credit union may make to the borrower in a six-month period, provided the borrower has only one outstanding loan at a time.
NCUA is also seeking comments on the possibility of creating a third program, PALs III, which could have different fee structures, loan features, maturities and loan amounts.
Federal credit union (FCU) loans under PALs I enjoy a safe harbor under the Bureau of Consumer Financial Protection (BCFB, also called CFPB) rule on payday lending. NCUA says PALs II loans would not have this safe harbor, but as currently proposed, they would qualify for the BCFP’s partial exemption for “alternative loans.” (The loan, for this partial exemption, must meet all the requirements of PALs I, except FCUs are not required to have a minimum membership requirement or a restriction on the number of loans provided to a borrower in a six-month period.)
Year-end 2017 call report data show that 518 federal credit unions reported offering PALs loans, NCUA says in its notice of proposed rulemaking. These institutions reported 190,723 outstanding loans with an aggregate balance of $132.4 million. This is up sharply from 2012, it says, when 386 FCUs offered the loans, with 38,749 loans in all and an aggregate outstanding balance of about $13.5 million.