Compliance Blog

Written by Bernadette Clair, Regulatory Compliance Counsel

In addition to the proposed definition of a “small entity” that we blogged about yesterday, the NCUA, at its September Board meeting, approved an advance notice of proposed rulemaking (ANPR) on the agency’s payday-alternative loan (PAL) rule.  Previously, these loans were referred to as short-term, small amount loans. 

The current rule, found in section 701.21 of NCUA’s Rules and Regulations, allows federal credit unions to charge a rate no higher than 1,000 basis points above the agency-set loan interest rate cap, now 18 percent. The rule permits an application fee of up to $20, requires that loan amounts are no lower than $200 an no higher than $1,000 and, among other things, prohibits more than three such loans to one member in any rolling, six-month period.

NCUA is reviewing its regulation in part because there has been limited response from federal credit unions (FCUs).  At the Board meeting, NCUA staff indicated that as of June 30, 2012, just 420 federal credit unions reported offering these loans.

NCUA is seeking comments on the application fee and any other comments about the current regulation.  Several questions are also provided for consideration:

• Should the Board increase the permissible PAL interest rate, currently 28 percent, based on 1,000 basis points above the maximum level for non-PALs?
• Should the Board expand the permissible PAL dollar range from the current $200 to $1,000?
• Should the Board permit PAL maturities shorter than one month or longer than six months?
• Should the Board allow federal credit unions to make more than one PAL at a time to a borrower? 
• Should the Board eliminate or decrease the one-month minimum length of membership requirement?
• Should the Board increase the limit on the permissible aggregate dollar amount of loans made, which currently is 20% of an FCU’s net worth?

The Board is also seeking information from credit unions offering other viable, responsible alternatives to payday loans and the business models they are using to execute these loan programs successfully.  See the ANPR for more details.

The ANPR will have a 60-day comment period upon its publication in the Federal Register.  NAFCU will prepare a Regulatory Alert for members.