The NCUA's proposed new additions to its Payday Alternative Loan program still would trap borrowers in a cycle of debt, advocates of strict short-term loan regulations said.
“We're concerned about further encouragement of a significant fee-per-loan model,” said Rebecca Borne, senior policy counsel at the Center for Responsible Lending, an affiliate of the Self-Help Credit Union.
The NCUA board last week approved a plan to seek public comment on a new loan program that would supplement but not replace the existing PAL program.
The new program would increase the maximum loan amount to $2,000, increase the maximum loan term to 12 months, require no minimum length of membership to obtain loans and eliminate the provision that allows a federal credit union to make only three loans to a member in a six-month period.
When they agreed to seek comment on the proposal, NCUA board members said they hoped the supplemental program would encourage more credit unions to offer short-term loans and convince borrowers to seek loans from a credit union rather than from a payday lender.
Borne said the current PAL limit of three loans is an important check on “loan flipping.” She said lack of a limit on the number of loans a borrower may take out increases the possibility that some members will end up with “an unacceptably high number of short-term, higher-cost, potentially unaffordable loans.”
A second advocate of strict regulation of the payday loan industry agreed.
The current PAL program is an affordable and responsible loan option, said Jose Alcoff, payday campaign manager at Americans for Financial Reform.
He said the proposal's lack of a cap on the number of loans and the extended time could place an additional strain on a borrower's finances.
However, Alex Horowitz, senior research officer for The Pew Charitable Trusts' consumer finance project welcomed the proposal.
“Giving credit unions more leeway to serve their members who are using payday and other high-cost loans is the right move,” he said.
The NCUA proposal comes at the same time that Acting CFPB Director Mick Mulvaney is contemplating loosening the strict payday loan rules that the CFPB issued under former Director Richard Cordray.
This week, the payday lending industry filed comments with the CFPB blasting the process that Cordray used to develop the strict rules.
“From our perspective, at no time has the Bureau been willing or open to truly listening and considering the opinions and viewpoints of all interested parties,” Dennis Shaul, CEO of the Community Financial Services Association of America, which represents payday lenders wrote. “We had no meaningful meetings with the Bureau to discuss the emerging small-dollar rule, and probable rule changes, despite our many requests.”
And he added, “In the case of the small-dollar loan industry, from the beginning of the Bureau, it became very clear that industry perspectives were not welcome.”
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