WASHINGTON (11/30/12)--Giving federal credit unions more flexibility on application fees and interest rates on payday-alternative loans (PALs) would allow more credit unions to offer those products, the Credit Union National Association (CUNA) wrote in a Nov. 26 comment letter to the National Credit Union Administration (NCUA).
Credit unions generally seek to be reasonable when charging fees for loan application processing, including loans under the PALs program, CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn wrote.
However, because of costs incurred, credit unions should be able to charge an application fee that is greater than the current maximum of $20, she recommended. Dunn also recommended that credit unions that offer PALs should continue to be able to charge at least 1,000 basis points above the maximum rate allowed on other loans.
The NCUA began allowing federal credit unions to issue PALs in 2010 and is seeking comments on the program.
The CUNA letter added that credit unions should be allowed to charge higher rates than the current annual percentage rate (APR) of 28%. They should be able to choose between the 28% APR that does not include the application fee, or an APR of 36% that incorporates fees.
Dunn also wrote that the range of PALs be expanded above and below the current range of $200 to $1,000 loans.
CUNA also recommended that the NCUA:
- Allow loan maturities less than one month and longer than six months;
- Allow credit unions to offer more than one PAL at a time; and,
- Eliminate the requirement that someone be a member of the credit union for a month before they can take out such a loan.
"CUNA encourages all regulators that affect credit unions' operations to do all they can to help alleviate regulatory burdens and provide more leeway, consistent with legal requirements, for credit unions to make their own decisions about how best to serve their members. More flexibility regarding the PALs program will not only help credit unions in that regard but also will ensure more consumers have ready access to much needed credit on better terms than what abusive payday lenders not subject to NCUA requirements offer,'' CUNA wrote.
As of June 2012, about 420 credit unions offered PALs with an aggregate balance of $16.7 million on over 41,000 outstanding loans.