NCUA Issues Proposed Rule on Payday Alternative Loans

At its May meeting, the National Credit Union Administration (NCUA) Board issued a proposed rule that provides federal credit unions (FCUs) an additional option to offer payday alternative loans (PALs). The proposal does not replace the current PAL rule (PAL-I); rather, it provides an alternative with differing terms and conditions—PALs II. Amendments include:

  • Length of Membership Requirement: eliminated
  • Number of Loans: no restriction on number of loans in a certain amount of time
  • Loan Amounts: no minimum; maximum $2,000
  • Loan Term: min one month; max 12 months

In relation to the Consumer Financial Protection Bureau’s (CFPB) payday lending rule, current PAL-I loans enjoy a safe harbor. When incorporating the PAL-II membership change and the no limit on the number of loans change the loan would fall under the Bureau’s exemption; however, incorporating all four PAL-II amendments would fully subject the loan to the Bureau’s rule. NCUA Board Chairman Mark McWatters and Board Member Rick Metsger agreed to write a joint letter to the CFPB Acting Director to advocate for full safe harbor of PAL-II loans.

The Board also asks for feedback on creating a PAL-III loan which could include different features and fee structures, but which would be subject to the Bureau’s payday lending rule.

A full summary of the proposed rule will be available soon in PowerComment. The Leagues urge you to review and submit your comments on this payday alternative loans proposal.

Final Rule—Involuntary Liquidations
The Board issued a final rule to update and clarify the procedures that apply to claims administration for federally insured credit unions that enter involuntary liquidation. The amendments clarify the requirements for proof of a claim by an employee for earned but unused paid time off and severance pay.

Share Insurance Fund Quarterly Report
The Board also received the Share Insurance Fund (Fund) report for the quarter ended March 31, 2018. The Fund posted a net income of $33.1 million in the first quarter 2018, which was said to be primarily due to the strong investment income earnings.

The number of CAMEL 4-5 credit unions increased from the fourth quarter 2017 by four to 200, while assets for these credit unions decreased 4.2 percent to $9.2 billion and they hold 0.76 percent of total insured shares.

The number of CAMEL 3 credit unions decreased from the fourth quarter 2017 by 18 to 1,054, while assets for these credit unions increased 2.6 percent to $57.4 billion and they hold 4.65 percent of total insured shares.

95.1 percent of insured credit unions are CAMEL 1-2.

When asked by Chairman McWatters, the Chief Financial Officer indicated that the $735.7 million dividend will likely be distributed early, rather than later, in the third quarter.