NCUA's Proposed Payday Alternative Loans Unattractive to CUs: Trades
In comments, some argue that credit unions should be permitted to design their own short-term loan programs.
A new payday alternative program proposed by the NCUA is unlikely to convince many more credit unions to offer short-term loans because the loan terms are too prescriptive, credit union trade groups said.
On the other hand, a consumer group said that loans’ terms still will trap borrowers in a cycle of debt.
The reactions came in comments about a new proposal that would supplement but not replace the existing Payday Alternative Loan program. Comments on the proposal were due Friday.
“CUNA believes that credit unions are ideally situated to satisfy these lending goals, as opposed to unscrupulous payday lenders,” Monique Michel, the association’s senior director of advocacy and counsel wrote. “CUNA would prefer a holistic approach to PAL products that would provide credit unions and consumers with flexibility to tailor short-term, small-dollar loans to their needs, without being overly prescriptive.”
“NAFCU recommends the NCUA adopt PAL loans that have flexible parameters allowing credit unions to establish loans that work best for their members,” Kaley Schafer, the association’s regulatory affairs counsel wrote.
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.
Michel said that the CFPB and other agencies allow a 36% annual percentage rate, while the NCUA plan would cap it at 28%, a rate that would continue to hinder credit union participation.
She also said that the ability to repay requirements should be determined by individual credit unions.
Schafer said the proposed PAL alternative is attractive because it removes the requirement that someone be a member of a credit union before obtaining a short-term loan and the ability to offer more than one loan in a six-month period. She added, however, that credit unions should be permitted to design their own short-term loan programs.
And the NCUA should ensure that the short-term loans have a “safe harbor” from CFPB rules, she said.
But, Kelly S. Griffith, executive director of the Center for Economic Integrity in Colorado said that the fee structure in the proposed program would drive up fees for consumers.
“Underwriting for credit union loans should be based on ability to pay, considering both income and expenses, especially for higher cost products targeted at financially distressed consumers who struggle to make ends meet,” Griffith wrote.
And Griffith wrote that by eliminating the one-month credit union membership requirement, credit unions have less information on potential borrowers.