Chairman Requests Exemption of NCUA’s Payday Alternative Loans
ALEXANDRIA, Va. (Dec. 18, 2014) –National Credit Union Administration Board Chairman Debbie Matz asked the Defense Department to preserve the ability of federal credit unions to provide affordable credit alternatives to military members and their families.
In a comment letter on the Defense Department’s proposed rule implementing the Military Lending Act, Matz seeks to exempt payday alternative loans, or PALs, that are made in accordance with NCUA’s regulation.
“PALs serve as a viable alternative to predatory payday loans and can help members avoid or end dependency on those loans,” Matz wrote. “In fact, the Department’s report on enhancing protections on consumer credit for Service members and their dependents cites PALs as an example of ‘small dollar loans designed to assist Service members who appear to need a way out of unmanageable debt.’”
In her letter, Matz repeated NCUA’s strong support for consumer protections and the goals of the proposed rule. NCUA believes its regulation permitting payday alternative loans “appropriately balances” considerations of consumer protection and availability of affordable credit.
NCUA’s current regulation allows federal credit unions to offer payday alternative loans with a rate cap of 1,000 basis points above the 18-percent general rate cap for credit unions and an application fee of up to $20. Under the Defense Department’s proposed rule, consumer credit to covered borrowers is subject to a 36-percent cap on the military annual percentage rate, or military APR, which includes application fees. If these regulations are revised to cover payday alternative loans, the rate and fee for many payday alternative loans would be higher than the military APR cap.
The Defense Department’s proposed rule would cover other types of consumer credit as well, including credit card accounts and overdraft lines of credit with a finance charge. As with payday alternative loans, the combined interest rates and fees for some of these products could exceed the 36-percent military APR cap, even if the interest rate is below the general 18-percent rate cap for federal credit unions.
NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the United States, NCUA operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of account holders in all federal credit unions and the overwhelming majority of
state-chartered credit unions. At MyCreditUnion.gov, NCUA also educates the public on consumer protection and financial literacy issues.