By Frank J. Diekmann
The Universe has always had a great sense of irony, although it seems to like to play it subtle. And the ole U was up to it again last week with some timing of events inside the credit union and bank communities.
First, the Office of the Comptroller of the Currency issued a new guidance bulletin calling on banks to offer “responsible short-term, small-dollar loans.” Note this is “guidance,” not any sort of rule, and even the guidance was anything but clear-cut as all it does is require banks to offer loans with “reasonable pricing.”
And therein lies the rub, as one man’s “reasonable” is another man’s inescapable whirlpool of debt.
Nature may abhor a vacuum but don’t expect it to be filled any time soon by the whooshing sound of three-piece suits as they dash to expand their small dollar loan offerings. Small dollar means small profits (if any) and that means small (if any) interest by banks. Besides, many banks either own or have a stake in payday lending operations that are hugely profitable and spare their own brands the stain of 300%+ interest rates.
Listen Up, PAL
Coincidentally (or perhaps not, as this seems to be how the Universe likes to work), just a day later the NCUA board held its meeting at which it put out for comment a proposal to expand the Payday Alternative Loans (PAL) program with something called PALS II (because who doesn’t love a sequel?)
Under the proposal, the membership requirement of one month would be eliminated, loan amounts of up to $2,000 would be permitted and the minimum loan amount of $200 under PALS I would not be required; loans would have a maximum term of 12 months, and FCUs would be permitted to make loans to any one borrower with no restrictions on the number of loans––however, a loan would need to be fully repaid before the FCU can make another loan to that borrower. You can read more about it here.
In short, it’s an effort by credit unions to be a pal to people who could use one.
According to NCUA, at year-end 2017 there were 518 FCUs offering PALS loans, with 190,000 total loans outstanding and $13.3 million in outstanding loan balances.
Credit unions that offer PALs have struggled to get them to break even, much less be profitable, and offer the product because they consider it part of their mission as a CU.
In announcing its guidance, Comptroller Joseph Otting said, “Millions of U.S. consumers borrow nearly $90 billion every year in short-term, small-dollar loans typically ranging from $300 to $5,000 to make ends meet. Consumers should have more choices that are safe and affordable, and banks should be part of that solution.”
That 13-million bucks borrowed at credit unions is across the universe from that $90 billion, so clearly credit unions and banks could do a lot more. But I wouldn’t look for those banks to pal up on this with CUs anytime soon, especially when you consider all the time demands they're already facing in complaining about the CU tax exemption.
Some Extra Cheese
Perhaps, given all its experience it has watching mankind and shaking its starry head, the Universe knew the humans of earth probably would miss the irony, so it threw in some extra cheese last week. Because if there’s one thing any pizza-loving species knows, you just can’t get enough cheese.
The Wisconsin Bankers Association got its cheddar up in response to a ruling from NCUA that state charters are free to use the words “bank” and “banking” in the course of doing business and in their marketing.
The bankers called NCUA “disingenuous” for what they said was an attempt to “create equality among competitors” while also ignoring “the unfair tax and regulatory advantages credit unions enjoy.”
Looking to level the playing field and make things a little more fair, bankers? Credit unions have an offer for ya, PAL.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info or @FrankCUToday.