The National Credit Union Administration has published a notice in the Federal Register proposing to amend the NCUA’s general lending rule to provide federal credit unions (FCU) with a second option for offering “payday alternative loans” (PALs).  Comments on the proposal are due by August 3, 2018.

In 2010, the NCUA amended its general lending rule to allow FCUs to offer PALs as an alternative to other payday loans.  For PALs currently allowed under the NCUA rule (PALs I), an FCU can charge an interest rate that is 1000 basis points above the general interest rate set by the NCUA for non-PALs loans, provided the FCU is making a closed-end loan that meets certain conditions.  Such conditions include that the loan principal is not less than $200 or more than $1,000, the loan has a minimum term of one month and a maximum term of six months, the FCU does not make more than three PALs in any rolling six-month period to one borrower and not more than one PAL at a time to a borrower, and the FCU requires a minimum length of membership of at least one month.

The proposal is a reaction to NCUA data showing a significant increase in the total dollar amount of outstanding PALs but only a modest increase in the number of FCUs offering PALs.  In the proposal’s supplementary information, the NCUA states that it “wants to ensure that all FCUs that are interested in offering PALs loans are able to do so.”  Accordingly, the NCUA seeks to increase interest among FCUs in making PALs by giving them the ability to offer PALs with more flexible terms and that would potentially be more profitable (PALs II).

PALs II would not replace PALs I but would be an additional option for FCUs.  As proposed, PALs II would incorporate many of the features of PALs I while making four changes:

  • The loan could have a maximum principal amount of $2,000 and there would be no minimum amount
  • The maximum loan term would be 12 months
  • No minimum length of credit union membership would be required
  • There would be no restriction on the number of loans an FCU could make to a borrower in a rolling six-month period, but a borrower could only have one outstanding PAL II loan at a time.

In the proposal, the NCUA states that it is considering creating an additional kind of PALs (PALs III) that would have even more flexibility than PALs II.  It seeks comment on whether there is demand for such a product as well as what features and loan structures could be included in PALs III.  The proposal lists a series of questions regarding a potential PALs III rule on which the NCUA seeks input.

The NCUA’s proposal follows closely on the heels of the bulletin issued by the OCC setting forth core lending principles and policies and practices for short-term, small-dollar installment lending by national banks, federal savings banks, and federal branches and agencies of foreign banks.  In issuing the bulletin, the OCC stated that it “encourages banks to offer responsible short-term, small-dollar installment loans, typically two to 12 months in duration with equal amortizing payments, to help meet the credit needs of consumers.”

 

In addition to the CFPB’s Spring 2018 rulemaking agenda that we have already blogged about, the Spring 2018 rulemaking agendas of several other federal agencies contain some items of interest to consumer financial services providers.

Items of particular interest are:

  • OCC.  The OCC plans to issue an Advance Notice of Proposed Rulemaking “for modernizing the current regulations to carry out the purposes of the Community Reinvestment Act.”  The agenda gives a May 2018 estimated date for the ANPRM.  Last month, the Treasury Department issued a memorandum in which it made recommendations for modernizing the CRA.  The memorandum was directed to the primary CRA regulators, consisting of the OCC, the Federal Reserve, and the FDIC.  Of the three agencies, only the OCC’s Spring 2018 rulemaking agenda included a CRA item.
  • NCUA.  The NCUA is drafting an amendment to its general lending rule to give federal credit unions an additional option for offering Payday Alternative Loans (PALs).  The proposal would be an alternative to the current PALs rule.  It would modify the minimum and maximum loan amounts, eliminate the minimum membership requirement, and increase the maximum loan maturity while incorporating the other features of the current PALs rule.  The NCUA expects to issue a Notice of Proposed Rulemaking in May 2018.
  • Dept. of Education.  In June 2017, the ED announced that it was postponing “until further notice” the July 1, 2017 effective date of various provisions of the “borrower defense” final rule issued by the ED in November 2016, including the rule’s ban on arbitration agreements.  It also made a concurrent announcement that it planned to enter into a negotiated rulemaking to revise the “borrower defense” rule.  In October 2017, the ED published an interim final rule postponing the effective date of such provisions of the “borrower defense” final rule until July 1, 2018, and in February 2018, the ED published a final rule to further postpone the effective date until July 1, 2019.  In its Spring 2018 rulemaking agenda, the ED indicates that it expects to issue a NPRM in May 2018 regarding the “borrower defense” rule.