Consumer Lending

NCUA: Credit unions can provide alternative to costly payday loans

resized_NCUA_SEALRepresentatives from the NCUA’s Office of Small Credit Union Initiatives and Office of Examination and Insurance told credit unions on Wednesday that the institutions can provide a viable alternative to predatory payday loans.

NCUA representatives told credit unions during Wednesday’s webinar that payday loans can provide credit unions with the opportunity to transition some borrowers to more traditional credit products offered by the institutions.

NCUA’s short-term, small-dollar loan program allows federal credit unions to charge an interest rate of a maximum 10 percentage points above the usury ceiling—currently, an interest rate ceiling of 28 percent.

Many credit unions that offer payday loan alternatives also provide member financial counseling, encourage savings and limit fees. Nearly two-thirds of webinar participants said they do not offer loans through the NCUA program.

The webinar also covered other types of small-dollar loans that do not have the same requirements as PALs and are limited to interest rates of 18 percent or less.

NCUA staff said that when examining a credit union’s small-dollar loan offerings, adequate policies and procedures, as well as sufficient documentation, will be necessary. Examiners also said they will check for verified application fees and established, well-monitored lending limits.

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