The National Credit Union Administration is looking to give a second option to federal credit unions offering payday alternative loans.
The move comes as the Consumer Financial Protection Bureau is working on its own payday lending rule and the Office of the Comptroller of the Currency is encouraging banks to dive into short-term lending, as well.
During its May open board meeting today, NCUA put forward a proposal to create a second product that credit unions could offer in addition to the PAL program created in 2010. The new product aims to help credit unions meet the needs of borrowers who don’t qualify for the current program while continuing to provide safe, inexpensive alternatives to traditional payday lenders.
NCUA’s proposal would include many of the features contained in the current PAL offering, with four changes:
- Eliminating the minimum loan amount and setting a maximum loan amount at $2,000
- Setting a maximum term of 12 months
- No minimum length of credit union membership required
- No restriction on the number of loans credit unions can make to borrowers in a six-month period (as long as the borrower only has one outstanding loan at a time).
NCUA’s move comes just one day after the Comptroller of the Currency gave banks the OK to offer short-term loans to subprime borrowers as a way to stave off competition from nontraditional lenders like fintechs – a stark change from previous regulators at OCC.
PALs continue to be a strong offering for credit unions, with NCUA noting that 503 credit unions utilized a product using the regulator's current rules during the fourth quarter of last year alone, at which time credit unions held a total of $38.6 million PALs on the books.
But with the Consumer Financial Protection Bureau issuing its own payday lending rules, many states have made their own moves on payday lending in recent years – and not always in ways credit unions have found beneficial.
NCUA is currently seeking comment on a possible third PAL option and requesting input on interst rates, maximum loan amounts, terms, fees and more. Comments on the proposal must be received within 60 days of publication in the Federal Register.
The NCUA board today also clarified a rule on severance claims after involuntary credit union liquidations. According to the rule, requirements for proof of a claim by an employee for pay or benefits such as unpaid wages, sick time or vacation time and makes a distinction between employees’ claims and claims by a credit union executive that constitute a golden parachute.
The final rule will become effective 30 days after publication in the Federal Register.
Lastly, the board provided an update on the National Credit Union Share Insurance Fund, which posted net income of $33.1 million during Q1 thanks to strong earnings on investments. The Share Insurance Fund’s net position was $15.0 billion at the end of the first quarter of 2018.
First-quarter investment and other income was $72.0 million, or a 42.6 percent increase in income over $50.6 million during the first quarter of 2017. Operating expenses were $43.1 million. The provision for insurance losses decreased by $4.2 million.
NCUA also reported that two federally insured CUs failed during the first quarter, the same number that failed in the first three months of 2017. Year-to-date losses related to credit union failures stand at $1.2 million – a stark change from the $3.7 million in Q1 2017 – and fraud is not believed to be a contributing factor in either of the two first-quarter failures.