CFPB’s Payday Lending Rule excludes or exempts several types of consumer credit, including alternative loans made under NCUA’s Payday Alternative Loan (PALs) program.
The Federal Credit Union Act generally limits federal credit unions to a 15% interest rate ceiling on loans. In 2010, however, NCUA established an exception to the interest rate limit and permitted federal credit unions to offer payday alternative loans under its PALs program.
Federal credit unions may charge those borrowers up to 28% on PALs under the terms and conditions specified in NCUA’s regulation:
A principal amount of $200 to $1,000 to borrowers who have been members of the credit union for at least one month.
An application fee of no more than $20.
A term of one to six months.
Up to three PALs to each member during a six-month period.
PALs can't overlap or roll over.
In addition, PALs must fully amortize, and the credit union must establish underwriting guidelines such as verifying borrowers’ employment from at least two recent pay stubs.
On Sept. 19, 2019, the NCUA approved a final rule which allows federal credit unions to offer an additional payday alternative loan option to members.
The final rule, known as PALs II, does not replace the current PALs program (PALs I) but is a distinct product with features to help federal credit unions meet specific needs of certain payday loan borrowers that are not met by the current program and provide those borrowers with a safer, less expensive alternative to traditional payday loans.
Specifically, the PALs II program:
Allows a federal credit union to offer a PALs II loan for any amount up to $2,000.
Increases the maximum maturity for PALs II loans to 12 months.
Eliminates the minimum membership requirements to permit a federal credit union to make a PALs II loan immediately upon the borrower’s establishing membership.
Restricts a federal credit union to offering only one type of PALs loan to a member at any given time.
All other requirements of the existing PALs I, including a prohibition against rollovers, a limitation on the number of loans a single borrower can take in a given period, full amortization, an application fee not to exceed $20, and underwriting guidelines, are incorporated into PALs II.
The final rule also noted that the May 2018 PALs II NPRM had solicited comments from interested stakeholders on the possibility of creating a third PALs loan program (PALs III), which could include different fee structures, loan features, maturities, and loan amounts.
The final rule will become effective Dec. 2, 2019.
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