NCUA Unveils Payday Loan Rules; Matz Urges Caution
ALEXANDRIA, Va. -- Federal credit union alternatives to payday loans could range from $200 to $1,000, have a maximum APR of 1,000 basis points above the interest rate ceiling and carry an application fee of no more than $20.
Those are among the provisions of the proposed rules that the NCUA Board voted unanimously last Thursday to approve for a 60-day comment period.
Under the current interest rate ceiling, the maximum APR would be 28%. The loans could be for a minimum of one month and a maximum of six months, and any member couldn't have more than one such loan from any one credit union at the same time.
In response to a question from NCUA Board Member Michael Fryzel, NCUA Staff Attorney Justin Anderson said there is no requirement that the credit union find out whether the member has any similar loans from other credit unions or to run a credit report on the prospective borrower.
NCUA Chairman Debbie Matz said that while there is considerable interest among credit unions in expanding their activities in this area they "need to do this very carefully." And she added that the proposal balances the needs of some people for access to short-term loans with the need to protect the safety and soundness of federal credit unions.
According to the agency, 352 federal credit unions offer alternatives to payday loans and 605 offer micro-loans, those with a principal of less than $500. Anderson said the rules change wouldn't impact open-end loan programs and wouldn't prohibit a federal credit union from continuing existing closed-end programs, as long as they are complying with NCUA and Federal Reserve rules.
In response to a question from Matz, Anderson said the agency staff came up with $20 as the application fee because it is enough to defray the costs of processing the application while protecting credit union members from being charged too much, as they often are at payday lenders.
NCUA Board Member Gigi Hyland said that many people go to payday lenders for the anonymity and convenience that they provide, and she hopes the rules would "help people to be able to break that chain."
The board also voted unanimously to extend the waiver of capital standards rules at corporate credit unions so they may use their capital levels as of Nov. 30 for purposes of determining regulatory compliance on items such as capital ratio requirements, earnings retention, lending limits and borrowing limits.
The waiver runs until one year after the new corporate credit union rules-which the agency is currently reviewing-take effect. Matz said the agency plans to release the final rules in September.
She said the waiver extension will "allow corporate and natural person credit unions to provide regular financial services while the rules are being revised."
NCUA Chief Financial Officer Mary Ann Woodson told the NCUA Board that 19.5% of insured shares were in credit unions with a rating of CAMEL 3 or higher at the end of March, compared with 19.6% at the end of February. The NCUSIF equity ratio was at 1.26%, compared with 1.23% at the end of February.
She said that 13.8% of insured shares were in CAMEL 3 credit unions, and 5.6% of shares were at CAMEL 4 and 5 credit unions.
There have been eight failures of federally insured credit unions so far this year.
Woodson told the board that the NCUSIF's net income increased $3.2 million last month. Its net income this year has been $22.8.5 million, even though the agency projected a loss of $163.5 million.