OCC Issues Standards for Bank Short-Term Lending

A day before the NCUA board considers seeking public comment on a plan to expand its Payday Alternative Loan Program, the Comptroller of the Currency on Wednesday issued core lending principles intended to encourage banks to offer short-term loans.

“Consumers should have more choices that are safe and affordable, and banks should be part of that solution,” Comptroller Joseph Otting said, in issuing the principles.

The NCUA and OCC efforts are intended to offer borrowers who otherwise would take out loans offered by predatory lenders that charge exorbitant interest rates and fees in an attempt to lock those people into a cycle of debt.

While exact details of the NCUA plans were not available Wednesday, as 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.

The NCUA board made it clear in its announcement that the new program would not replace the current PAL program but would supplement it. The board also announced at the time that the board will consider whether to create a third loan option, which would include different “fee structures, loan features, maturities, and loan amounts.”

The OCC rescinded its short-term loan guidance in 2017, after the CFPB issued its strict payday lending rules. However, Acting CFPB Director Mick Mulvaney has said the bureau will revisit those rules.

The principles issued by the OCC include statements that:

• Loans should support borrower affordability and successful repayment of principal and interest in a reasonable amount of time.
• Pricing should reflect overall returns reasonably related to product risks and costs.
• Analysis should use nontraditional means to determine a borrower’s creditworthiness.
• Marketing and disclosures should comply with consumer protection laws and that provide information in a “transparent, accurate and customer-friendly manner.”
• Loan servicing processes should that help borrowers avoid a continuous cycle of debt and costs and them in repaying loans.
• A borrower’s repayment activity should be to credit bureaus to assist the borrowers to transition into traditional mainstream financial products.