Payday Alternative Loan Rule Will Create More Alternatives for Borrowers

September 2019
Payday Alternative Loan Rule Will Create More Alternatives for Borrowers

Board Action Bulletin

ALEXANDRIA, Va. (Sept. 19, 2019) – The National Credit Union Administration Board held its eighth open meeting of 2019 at the agency’s headquarters today and approved three items:

  • A final rule allowing federal credit unions to offer an additional payday alternative loan option to members.
  • A final rule to clarify the agency’s regulation covering required credit union supervisory committee audits and providing credit unions with additional flexibility in the audit process.
  • A final rule updating, clarifying, and simplifying federal credit union bylaws.

The Chief Financial Officer briefed the Board on the performance of the National Credit Union Share Insurance Fund.

Final Payday Alternative Loans Rule Provides Greater Flexibility

Federal credit unions will be able to offer more payday alternative loan options under a final rule approved, 2-1, by the NCUA Board.

“The PALs II rule is a free-market solution that responds to the need for small-dollar lending in the marketplace,” NCUA Chairman Rodney E. Hood said. “This can make a difference by helping borrowers build or repair credit records, allowing them to graduate to other mainstream financial products. We want to encourage responsible lending that allows consumers to address immediate needs while working towards fuller financial inclusion. Particularly when coupled with financial counseling, as many credit unions provide, such lending can be a powerful tool to help people get out of debt and climb the ladder toward financial security. This is an example of the fundamental credit union principle of people helping people.”

The final rule, known as PALs II, does not replace the existing payday alternatives loan option. The final rule approved today:

  • Allows a federal credit union to offer a PALs II loan for any amount up to $2,000;
  • Requires PALs II loans to have a minimum term of one month with a maximum of 12 months;
  • Allows a federal credit union to make a PALs II loan immediately upon the borrower’s establishing membership; and
  • Restricts a federal credit union to offering only one type of PALs loan to a member at any given time.

All other requirements of the existing payday alternative loan program—a prohibition against rollovers, a limitation on the number of loans a single borrower can take in a given period, and full amortization—remain in effect.

The final rule will become effective 60 days after publication in the Federal Register.

Final Rule Simplifies, Clarifies Supervisory Committee Audits

The NCUA Board unanimously approved a final rule amending the supervisory committee audit regulation for federally insured credit unions.

The final rule updates outdated provisions of the regulation and provides added flexibility to federally insured credit unions with assets less than $500 million while continuing to ensure appropriate financial oversight.

The final rule:

  • Replaces the outdated Supervisory Committee Guide Audit alternative to a financial statement audit and replaces it with a simplified appendix to the regulation;
  • Eliminates two types of audits federally insured credit unions seldom use; and
  • Eliminates the 120-day deadline for receiving a third-party audit report and gives credit unions the ability to negotiate a delivery date.

The final rule implements recommendations contained in the agency’s Regulatory Reform Task Force’s reform agenda.

The final rule will become effective 90 days after publication in the Federal Register.

Final Bylaws Rule Adopted

The Board unanimously approved a final rule that updates its regulation on federal credit union bylaws.

The final rule codifies in one place several existing NCUA legal opinions and clarifies several bylaw provisions. For example, it provides detailed guidance to help credit union officials, employees, and members better understand bylaw provisions, including a credit union’s ability to limit services to a disruptive or abusive member. The final rule also clarifies that the process to expel a member is statutory.

The final rule will become effective 90 days after publication in the Federal Register.

Strong Operating Trends Mark Share Insurance Fund Q2 Performance

The National Credit Union Share Insurance Fund reported a net income of $79.1 million and a net position of $16 billion for the second quarter of 2019.

Strong investment income earnings drove the net income. Second-quarter total income was $81.2 million. The equity ratio was 1.33 percent, calculated on an insured share base of $1.2 trillion. Operating expenses were $49.8 million in the second quarter, and the provision for insurance losses decreased by $47.7 million.

For the second quarter of 2019:

  • The number of CAMEL codes 4 and 5 credit unions increased 1.0 percent from the end of the first quarter, to 204 from 202. Assets for these credit unions decreased 6.8 percent from the first quarter, to $11 billion from $11.8 billion.
  • The number of CAMEL code 3 credit unions decreased to 3.6 percent from the end of the first quarter, to 872 from 905. Assets for these credit unions decreased 0.2 percent from the first quarter, to $50.4 billion from $50.5 billion.

There were no federally insured credit union failures in the second quarter of 2019 that caused a loss to the Share Insurance Fund. Total year-to-date losses associated with credit union failures is $40 million.

The second-quarter figures are preliminary and unaudited.

The NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Last modified on
09/19/19