Advancing Communities through Credit | National Credit Union Administration

Access to credit is the lifeblood of communities. At the NCUA, we are working to expand the availability of credit to stimulate economic growth and improve the financial well-being of all Americans.

Short-Term, Small-Dollar Lending

Credit unions have a long history of helping members through difficult times. They can offer loans through a variety of products. Federal credit unions (opens new window), specifically, may offer two types of payday alternative loans to members: PALs I and PALs II.

Under the PALs program (opens new window), a borrower must be a member of the credit union for at least one month. A federal credit union can charge an application fee only in the amount needed to recoup the actual costs associated with processing the application, up to $20. PAL amounts can range from $200 to $1,000. The loan terms range from 1 to 6 months.

Payday Alternative Loans II (PALs II)

In September 2019, the NCUA adopted the Payday Alternative Loans II rule (opens new window), which responds to marketplace demand for additional short-term, small-dollar loans options.

PALs II incorporates many of the structural features of the original PALs program which was designed to protect borrowers from predatory payday lending practices. Those features include a limitation on rollovers, a requirement that each PALs II loan must fully amortize over the life of the loan, and a limitation on the permissible fees that a federal credit union may charge a borrower related to a PALs II loan. A federal credit union would also have to structure each loan as closed-end consumer credit. New or modified features unique to PALs II loans include the loan amount, loan terms, membership requirements, number of loans, and a restriction on overdraft fees.

Relief for Borrowers Affected by COVID-19

The NCUA encourages federally insured credit unions to meet the financial needs of members affected by COVID-19. Credit unions may offer small-dollar, short-term loans to consumers and small businesses to meet members’ credit needs due to temporary cash-flow imbalances, unexpected expenses, or income disruptions. For borrowers who experience unexpected circumstances and cannot repay a loan as structured, credit unions are further encouraged to consider workout strategies designed to help borrowers repay the principal of the loan while mitigating the need to re-borrow.

The NCUA’s COVID-19 resource center includes FAQS and other helpful information for credit union members.