NCUA board approves final rule for additional Payday Alternative Loans


The NCUA board of directors held its eighth open meeting of 2019 yesterday and approved three items, including a final rule on the agency’s Payday Alternative Loan.

With a final rule approved, 2 to 1, by the board, federal credit unions will now be able to offer more PAL options. Board Chairman Rodney Hood and Board Member J. Mark McWatters voted to approve the rule. Todd Harper, the board’s sole Democrat, cast the dissenting vote.

“The PALs II rule is a free-market solution that responds to the need for small-dollar lending in the marketplace,” said Hood. “This can make a difference by helping borrowers build or repair credit records, allowing them to graduate to other mainstream financial products.”

Since 2010, NCUA has encouraged federal credit unions to offer non-predatory, short-term loans. Federal credit unions offering PALs were authorized to exceed the federal interest rate cap by ten percentage points. NCUA’s proposal authorized credit unions to offer an additional type of short-term loan, referred to as PAL II.

The final rule does not replace the existing payday alternatives loan option. The final rule approved yesterday:

  • allows a federal credit union to offer a PAL II or any amount up to $2,000;
  • requires a PAL II to have a minimum term of one month with a maximum of 12 months;
  • allows a federal credit union to make a PAL II immediately upon the borrower’s establishing membership; and
  • restricts a federal credit union to offering only one type of PAL to a member at any given time.

All other requirements of the existing payday alternative loan program—a prohibition against rollovers, a limitation on the number of loans a single borrower can take in a given period, and full amortization—remain in effect.

The board also approved two items, including a final rule to clarify the agency’s regulation covering required credit union supervisory committee audits and providing credit unions with additional flexibility in the audit process; and a final rule updating, clarifying and simplifying federal credit union bylaws.

The board also learned the National Credit Union Share Insurance Fund posted net income of $79.1 million and a net position of $16 billion for the second quarter of 2019.

For more information on yesterday’s board meeting, visit NCUA’s website.

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