NCUA to Propose New Payday Loan Alternative

The NCUA intends to consider adding a new option to its Payday Alternative Loan Program, according to documents filed with the Office of Management and Budget.

The agency plans to propose rules “modifying the minimum and maximum amount of the loans, eliminating the minimum membership requirement, and increasing the maximum maturity for these loans,” according to its Spring regulatory agenda, released by OMB on Wednesday.

The new program would not replace the current PAL program, but would supplement it. The outline said that the agency also will solicit comments on the possibility of creating a third loan option, which would include different “fee structures, loan features, maturities, and loan amounts.”

The changes would have to go through the regulatory process. The agenda states that the proposal will be released on “5/00/18.”

It is unclear whether that date is merely a placeholder or if the NCUA intends to release its proposal this month. An NCUA spokesperson would not elaborate on the OMB filing.

Through its PAL program, the NCUA permits federal credit unions to charge an interest rate of 1,000 basis points above the maximum interest rate established by the NCUA board and an application fee of not more than $20.

However, few credit unions participate in the program because they do not consider it to be profitable.

The OMB released its version of the government unified regulatory agenda, which includes all federal agencies on Wednesday.

Under the CFPB’s agenda, the agency states that it still plans to revisit the agency’s controversial payday lending rule and sets a date of February 2019 for completing that review.

In issuing the original payday lending rule, the CFPB said it was attempting to crack down on so-called payday lenders that make loans at extremely high interest rates.

However, the rule exempted credit unions making loans that conform to the NCUA’s PAL program.

The CFPB’s rule, issued under the regime of former agency Director Richard Cordray, was considered to be strict and was roundly criticized by Republicans. Now, the agency is headed by Acting Director Mick Mulvaney, a Trump Administration appointee who is considered much more sympathetic to the payday lending industry.

Credit union trade groups welcomed the news that the NCUA was planning to propose new options under the program.

“CUNA supports expansion of payday alternative loans,” said Ryan Donovan, CUNA’s chief advocacy officer. “Historically, credit unions have offered consumers options for short-term, small-dollar lending, without fear of predatory rates and terms from unscrupulous payday lenders. This is an important market to serve and CUNA appreciates NCUA’s commitment to expand opportunities for credit union lending.”

NAFCU has asked the NCUA to re-evaluate its program to ensure that members have alternatives, said Alexander Monterrubio , NAFCU’s director of regulatory affairs.

“It’s very difficult for credit unions to use the Payday Alternative Loan Program,” he said, adding that the rate of participation usually is around 15% of all credit unions.

He said he hopes the NCUA shortens the waiting time that new members must wait before taking out a short-term loan and moves to increase the profit margins for the loans.