NCUA updates PAL Rule

NCUA, CFPB issue payday rule guidance, resources

August 18, 2020

NCUA issued a regulatory alert (20-RA-07) detailing the Consumer Financial Protection Bureau’s final payday lending rule, including highlights of key provisions that affect credit unions.

The CFPB issued the final rule in July, which rescinds several ability-to-repay, underwriting, recordkeeping and recording requirements.

Provisions that affect credit unions include:

  • Lenders must calculate the finance charge under the CFPB Payday Rule the same way they calculate the finance charge under Regulation Z;
  • Generally, for covered loans, a lender cannot attempt more than two withdrawals from a consumer’s account. If a second withdrawal attempt fails due to insufficient funds:
    • A lender must obtain new and specific authorization from the consumer to make additional withdrawal attempts;
    • When requesting the consumer’s authorization, a lender must provide the consumer a consumer rights notice.
  • Lenders must establish written policies and procedures designed to ensure compliance;
  • Lenders must retain evidence of compliance for 36 months after the date on which a covered loan is no longer an outstanding loan.

PAL I loans are included in a safe harbor under the final rule, and are not subject to it. Depending on the loan’s terms, a PAL II loan may be a conditionally exempt alternative loan or accommodation loan under the CFPB Payday Rule. A federal credit union should review the conditions in the final rule to determine if its PALs II loans qualify for the aforementioned conditional exemptions.

Non-PALs from federal credit unions must meet the following conditions:

  • Comply with the conditions and requirements of an alternative loan under the CFPB Payday Rule;
  • Comply with the conditions and requirements of an accommodation loan under the CFPB Payday Rule;
  • Not have a balloon feature;
  • Be fully amortized and not require a payment substantially larger than all others, and otherwise comply with all the terms and conditions for such loans with a term of 45 days or less; or
  • For loans longer than 45 days, they must not have a total cost exceeding 36 percent per annum or a leveraged payment mechanism, and otherwise must comply with the terms and conditions for such longer-term loans.

The CFPB has also issued an updated frequently asked questions document on the rule. A recent CUNA CompBlog entry examines the additional guidance provided in the updated document.