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.