Credit Unions Keep Their PAL

June 2, 2016 at 8:43 am 2 comments

With the unabashed caveat that yours truly has not yet plowed through all of the 1,300 pages of the regulation, it appears that credit unions will be largely untouched by the CFPB’s proposed payday lending regulation, which it is officially unveiling at a town hall meeting this morning in Kansas.

When the CFPB first raised the prospect of regulating payday loans, NCUA and credit unions pointed out that if the Bureau wasn’t careful, it could actually end up prohibiting credit unions from making payday alternative loans (PAL).  (See 12 CFR 701.21).  These loans authorize credit unions to make short term loans of between $200 and $1,000 provided they have a minimum term of at least one month and a maximum term of six months; a credit union does not make more than 3 such loans to a member in any 6 month period; makes no more than one PAL loan at a time to a borrower; and the credit union doesn’t roll over the loan.  The catch is that NCUA permits credit unions to charge an application fee of up to $20 for these loans and charge an interest rate of up to 28% (10% more than the interest rate otherwise authorized for federal credit unions).

In the regulations proposed yesterday, the CFPB used the PAL loans as a model of acceptable payday lending provided the loan term is for a minimum of 46 days.  Another issue that financial institutions were concerned about was how this regulation would impact overdraft lines of credit.  According to the Bureau’s summary, overdrafts are exempted from the regulation.

In his press briefings yesterday, Director Cordray analogized a consumer who takes out a payday loan to a person who wants to get a taxi across town only to be taken across the country.  The problem with this metaphor is that there are, unfortunately, people that desperate for a lift.  I don’t envy the CFPB on this one.  Much like its qualified mortgage regulations, it will be judged on how well it balances a desire for regulating payday loans against the reality that there is a market for these loans that can’t be regulated away.

Active Day for Credit Unions in Albany

Yesterday was the type of day that underscores that New York credit unions are getting plenty of return for their investment in the Association.  The Assembly Banks Committee advanced two bills that will help credit unions.  A774 (Rodriguez) would allow the Comptroller to place state funds in credit unions.  A3521-b (Robinson) would permit credit unions to participate in banking development districts.

Also yesterday, Tristram Coffin, CEO of Alternatives FCU, spoke on behalf of the Association at a Senate Banks Committee Hearing exploring ways to expand bank capital to minority and women owned businesses.  As luck would have it, one of the messages that came through loud and clear was that credit unions are looking for the authority to increase small business lending.  The two bills passed out of the Assembly Committee yesterday would help credit unions do just that.

Your blogger is headed down to God’s country for a long weekend to celebrate a family wedding.  See you Tuesday.

Entry filed under: Advocacy, Compliance, General, New York State, Regulatory. Tags: , , .

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2 Comments Add your own

  • 1. Marvin Umholtz  |  June 2, 2016 at 11:08 am

    Henry- PAL was mostly for show, and never really caught on. It will not significantly fill the void created by the CFPB’s payday lending ban. — Marvin Umholtz 06/02/16

    • 2. Henry Meier  |  June 2, 2016 at 1:29 pm

      True enough but there are some credit unions that offer them and its preservation was key concern of NCUA in its comments to the CFPB. Plus I never have understood the argument that a payday loan from a credit union is categorically better than a traditional payday loan. Thanks for responding.


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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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