Overview
The NCUA’s current PAL regulation allows FCU’s to charge an interest rate on PAL loans that is 1,000 basis points higher than the interest rate set for non-PAL products (capped at 28%), to offset the greater.
When they examine a credit union’s small-dollar and payday-alternative loan programs, at a minimum, the NCUA will review adequate policies and procedures and sufficient documentation of loan files. NCUA examiners will also check for verified application fees as well as established and well-monitored lending limits risk involved and higher rate of delinquency and working within the conditions of the program.
Schedule of Tasks
- Credit Union staff will review the NCUA Rules and Regulations section 701.21 Regulatory Alert 10 RA-13
- CU*Answers will create a new loan category with supporting GL numbers and loans products
- The credit union will determine form requirements if any (custom programming of forms is a separate fee)
- The credit union will be provided with instructions on how to update their loan products, how to create loan samples and provide reports to their provider.
- Review the conditions of PAL Program
- The principal amount of the PAL loan is not less than $200 and not more than $1,000
- The PAL loan has a minimum maturity term of one month and a maximum maturity term of six months
- The FCU does not make more than three PAL loans in any rolling six month period to any one borrower, and makes no more than one PAL loan at a time to a borrower.
- The FCU does not rollover any PAL loan
- The FCU fully amortizes the loan
- The FCU sets a minimum length of membership requirement of at least one month
- The FCU charges an application fee to all members applying for a new PAL loan that reflects the actual costs associated with processing the application, but in no case may the application fee exceed $20
- The FCU includes, in irs written lending policies, a limit on the aggregate dollar amount of PAL loans made to a maximum of 20% of net worth and implements appropriate underwriting guidelines to minimize risk; for example, requiring a borrower to verify employment by producing at least two recent pay stubs
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