ALEXANDRIA, Va. (4/17/14)--The basics of credit union payday alternative loans (PALs) and advice for credit unions looking to start up their own programs were addressed during a Wednesday National Credit Union Administration webinar.
NCUA representatives included Tom Penna Jr., Office of Small Credit Union Initiatives economic development specialist; Lucinda Johnson, Office of Examination and Insurance program officer; and Kerri Donald, NCUA Region III examiner. Also participating in the webinar were Katia Marini-Nunez, CEO of $7.5 million-asset St. Francis FCU, Greenville, S.C.; Jennifer Lovett, CEO of $7.3 million-asset Mississippi DHS FCU, Jackson, Miss.; and Vickie Hastings, CEO of $34.9 million-asset Greenwood (S.C.) Municipal FCU.
The presenters stressed that NCUA PALs can serve as a viable option to predatory payday loans for many credit union members, as well as non-members. The loans, they said, give credit unions a chance to transition borrowers to more traditional products offered by credit unions.
|An NCUA analysis presented during the webinar showed that the 28% APR charged by many credit unions is well below the 661.80% APR reportedly charged in some payday loan situations. Monthly payments, fees and total payments on a $250 loan were also lower. (Source: NCUA)|
The NCUA's short-term, small-amount loan program permits federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. Currently, this amounts to an interest rate ceiling of 28%.
Most credit unions offering payday loan alternatives also limit fees, provide member financial counseling and encourage members to open savings accounts.
Nearly two-thirds of webinar participants said they did not offer PALs or other short-term small-amount loans. Twenty-seven percent of attendees said they offer the loans.
Direct deposit payments can be a useful tool to help credit unions limit the risk presented by these loans, but is not a requirement for PALs. Payroll deduction can also be used for PAL payments but cannot be a condition of extending credit. However, credit unions may offer lower rates or other incentives for members who choose to pay off their PALs using payroll deductions.
The webinar also covered other types of small-dollar loans provided by credit unions, which do not have the same requirements as PALs and are limited to an APR of 18% or less. Credit unions must ensure these other loan programs are in accordance with all applicable laws and regulations. Standard safety and soundness guidelines must also be applied, the presenters said.
When they examine a credit union's small-dollar and payday-alternative loan programs, NCUA staff said they will look to ensure adequate policies and procedures and sufficient documentation of loan files. NCUA examiners will also check for verified application fees as well as established and well-monitored lending limits.