NCUA’s latest Letter to Credit Unions (20-CU-04) highlights a joint statement from federal financial regulators on encouraging responsible small-dollar lending during the coronavirus disease (COVID-19) pandemic. The joint statement expressly encourages credit unions to offer responsible small-dollar loans to consumer and small business members.
“The agencies recognize the important role that responsibly offered small-dollar loans can play in helping customers meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recoveries,” the statement reads.
NCUA Chairman Rodney Hood, in NCUA’s letter, notes credit unions can offer small-dollar loans through a variety of products including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.
Federal credit unions may make two types of payday alternative loans (PALs I and PALs II), which may not contain any single payment or balloon payment feature.
Hood also encouraged credit unions to consider strategies designed to help borrowers who are experiencing financial difficulties, while mitigating the need to re-borrow.
“For all products, credit unions should offer loans in a manner that is consistent with safe and sound practices, provides fair treatment of members, and complies with applicable statutes and regulations, including consumer financial protection laws,” he wrote.
The joint interagency statement states the agencies are working on future guidance and lending principles for responsible small-dollar loans to facilitate the ability of financial institutions to more effectively meet the ongoing credit needs of their communities and customers.