Payday Alternative Loans

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

1. Credit Union staff will review the NCUA Rules and Regulations section 701.21 Regulatory Alert 10 RA-13
2. CU*Answers will create a new loan category with supporting GL numbers and loans products
3. The credit union will determine form requirements if any (custom programming of forms is a separate fee)
4. 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.
5. 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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