Strength of CU PALs in last week's hearing spotlight

March 21, 2016

WASHINGTON (3/21/16)--Credit unions provided $123.3 million in payday alternative loans (PALs) to members in 2015, the National Credit Union Administration (NCUA) reported in its most recent credit union quarterly data report. That was a 7.2% increase from the previous year.

The agency has noted that credit unions' "consumer- friendly payday alternative loans provide members with needed relief from triple-digit interest rates and excessive fees charged by predatory lenders."

The Consumer Financial Protection Bureau (CFPB) has put payday, small-dollar loans squarely on its regulatory agenda, under Fair Debt Collection Act rule changes. The Credit Union National Association (CUNA) has been working to educate the bureau about the value of credit union small-dollar loan products, and problems that could be caused by adding regulatory hurdles to them.

Specifically, CUNA warns, adding additional requirements to NCUA’s PAL Program could stagnate credit union involvement in the program since there are already many requirements for participants.

CUNA also has expressed concerns about similar state-chartered credit union consumer-friendly payday alternatives. CUNA has been highlighting that credit unions make little, or no, profit on these loans, and even minimally burdensome additional roadblocks could simply drive credit unions out of the market, leaving fewer good options for consumers.

During a House Financial Services Committee hearing last week, CFPB Director Richard Cordray provided some details about forthcoming rulemakings.

In response to a question from Rep. Ruben Hinojosa (D-Texas), Cordray confirmed that the bureau’s upcoming short-term, small-dollar loan proposal will not preempt currently available payday alternatives, such as credit union PALs.

Cordray said, “Community banks and credit unions have a product now that we want to make sure we are protecting and giving latitude for, and other products that may arise around the country. We don't want to squash innovation in this area."