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Guidance for CUs on STS loan rules NCUA
ALEXANDRIA, Va. (10/19/10)--Via a regulatory alert released last week, the National Credit Union Administration (NCUA) issued a series of questions and answers to assist federal credit unions in setting up a short-term, small amount (STS) lending programs. The NCUA last month made final an interim rule that allows federal credit unions to offer STS loans to their members as an alternative to predatory payday loans that are offered by other financial service providers. The final rule allows federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. A $20 application fee may also be charged. The loans may total as high as $1,000 and may last for as long as six months, the NCUA added in the release. The loans will not be permitted to rollover. The new rule will go into effect on Oct. 25. Credit unions “are required to establish underwriting standards in their written lending policies for short-term small loans,” the NCUA said. However, the best practices portion of the NCUA’s STS rule “is guidance, not a regulatory requirement,” the NCUA added. NCUA examiners will review STS loan policies, procedures and processes for evidence of proper underwriting. The examiners also will work to ensure that the STS loans “are being made in a way that provides the member with the best chance to successfully repay a loan made under this rule,” and that the application fees collected “are being used to recoup costs associated with processing an application and not to account for the riskier nature of this type of lending.” The examiners will also monitor credit unions to make sure they are complying with the NCUA’s 20%-of-net-worth limit for these types of loans. The NCUA will collect this and other information over the course of the next 12 to 18 months, and may make additional revisions to the rule as needed. For the NCUA release, use the resource link.
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