WASHINGTON–CUNA is calling on NCUA to expand opportunities for credit unions
to provide small-dollar, short-term loans.
Its comments are coming as part the agency’s proposed Payday Alternative Loans (PAL) II rule. “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,” the trade group wrote in the comment letter filed on Monday. “CUNA retains concern over the overall low (9%) representation of credit unions using the existing PAL program, cognizant that the compliance and entry costs often outweigh the potential benefits to consumers. We believe a parameters-based approach would offer greater flexibility for credit unions to engage this market.”
CUNA also said in its comment letter that:
- The proposed 28% annual percentage rate (APR) cap on PALs in the rule is “overly conservative,” with CUNA noting that recent Bureau of Consumer Financial Protection and Department of Defense short-term, small-dollar loan rules cap APR at 36%
- For the purposes of credit unions’ member service, it believes that one open PAL loan at any given time should be sufficient
- It does not believe that low-income designated or CDFI credit unions should be subject to the 20% net worth limit, stating “such exception would echo the MBL rule application and we believe would be appropriately applied here as well”
- It has concerns about the maximum loan value remaining stagnant over time. If the final rule were to retain the $2,000 limit, CUNA said it would like a mechanism to revisit the terms and definitions of what constitutes small-dollar.
- A $50 application fee limit would ensure sufficient range for institutions to develop pricing options that would permit new market entrants by supporting the actual costs involved, according to CUNA
- Allowing individual credit unions to determine ability to repay requirements, “because they would be better positioned for access to a member applicant’s employment, direct deposits, revolving loans, assets, and/or overall credit, and should have discretion to make their own ability to repay determinations”
CUNA said it remains supportive of a repurposed rule that would overhaul the existing and proposed PAL I and PAL II product lines into a singular PAL program that provides flexible ranges so that lending products can be tailored to regional, market and consumer needs.