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NCUA proposes payday loan alternative for CUs
ALEXANDRIA, Va. (4/30/10)--The number of federal credit unions that provide payday loan alternatives to their membership may increase if the National Credit Union Administration’s (NCUA) proposed changes to its general lending rules are adopted.
Click to view larger imageNCUA Chairman Debbie Matz discusses the short-term loan proposal with NCUA staff
The NCUA proposal, which was approved for 60 days' public comment at Thursday’s open board meeting, would allow credit unions to charge a higher interest rate on short-term, small dollar loans. However, those loans, which would be capped at a maximum interest rate of 10% above the NCUA’s loan ceiling, or 28% based on the current ceiling, would also have a maximum amount of $1,000. The minimum amount for these payday alternative loans would be $200. Loans will not roll over. The NCUA indicated that the proposal is consistent with the Federal Credit Union Act, which allows the agency to permit loan rates above 15% under certain conditions and does not require it to set the same ceiling for all types of federal credit union loans. Members would need to pay off their loans within one to six months, and may take out only one loan from their credit union at a time. Also, federal credit unions would not be authorized to make more than three such loans to a member in any rolling six-month period. Federal credit unions would not be required to run credit checks on their members, but should set loan amounts and terms that are appropriate for each member’s financial circumstance. Under the NCUA proposal, credit unions would be permitted to charge a $20 fee per loan to cover costs, and may also impose late or default fees “that comply with NCUA’s credit practices rule.” Credit unions “should be careful that late fees do not exacerbate a borrower’s financial situation,” the NCUA release added. NCUA Chairman Debbie Matz said that comments on the proposal should focus on safety and soundness concerns, and requested that credit unions currently offering these types of loans provide input on whatever difficulties they may have had. The application fees and interest associated with these loans, according to NCUA staff attorney Justin Anderson, are designed to merely cover the cost of providing these loans. NCUA board member Michael Fryzel added that these are “break even” loans, and are more of a service offered to members than a profit-based proposition. The NCUA also agreed to continue to permit corporate credit unions to use the capital levels disclosed on their Nov. 30, 2008, call reports when determining “their compliance with certain capital-based requirements and limitations” in the NCUA’s corporate guidelines. NCUA board member Gigi Hyland said that this continuation is “essential” to keep the credit union system stable as the NCUA works to resolve some outstanding issues within the corporates. The NCUA's action will extend until one year after the effective date of the new corporate regulation, which should be made final by October. Under the current corporate rule, a number of limitations on corporates are tied to the corporate's capital level. These include earnings retention, concentration limits, lending limits, borrowing limits and others. The extension of the waiver will permit corporates to comply with those limits based on the capital levels they reported in late fall of 2008. The NCUA's Office of Corporate Credit Unions will be able to modify the waiver for any particular corporate, based on safety and soundness issues. NCUA Chief Financial Officer Mary Ann Woodson also addressed the credit union system in her monthly report and updated the NCUA on the status of its National Credit Union Share Insurance Fund. While many statistics in the report remained steady when compared with recent reports, Woodson noted slight increases in the number of CAMEL Code 3, 4 and 5 credit unions, with the percentage of total insured shares held by those credit unions decreasing slightly since the start of 2010. There are currently 349 CAMEL 4 and 5 credit unions, which represent 5.68% of insured shares. NCUA staff also noted that there are currently 1,688 CAMEL 3 credit unions, which represent 13.86% of insured shares. Combined, insured shares in CAMEL 3, 4, and 5 credit unions represent approximately 18.5% of insured shares.
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