Credit unions need more authority to offer short-term, small-amount (STS) loans to help combat predatory payday lending. If federal regulators go forward with a plan intended to support that goal, the rules must not be too prescriptive, the Credit Union National Association (CUNA) wrote in a comment letter Friday. The National Credit Union Administration (NCUA) at its April 29 board meeting proposed to enable federal credit unions to offer STS loans, with a number of conditions, including:
An annual percentage rate (APR) that may not exceed 1,000 basis points above the Federal Credit Union Act interest rate ceiling. With the current ceiling at 18 percent, the maximum rate for the STS loan would be 28 percent. This higher APR would only be permitted for STS loans
An application fee would be permitted, but may not exceed $20
A minimum maturity of one month, with a maximum of six months. Rolling over the loan, a common feature of other types of payday loans, would be prohibited
The loan amount must be a minimum of $200 and a maximum of $1,000
The FCU would be permitted to make only one loan at a time to a member and no more than three in any rolling six-month period
Late fees would be permitted, but terms and loan amounts should be based on the borrower's proof of recurring income so that the borrower is able to pay off the loan in a timely manner
FCUs must include a cap on the number and total dollar amount of STS loans, which is to be included in their written lending policies.
FCUs must also implement appropriate underwriting criteria In its comment letter, CUNA expressed concern that the proposal may be too prescriptive and requested that the NCUA provide additional flexibility for those credit unions that want to offer these types of programs. Among its recommendations, CUNA believes credit unions should be able to choose between the proposed 28-percent APR, that also allows an application fee of $20, or an APR of 36 percent that incorporates other fees. CUNA also believes there should be flexibility with regard to the proposed prohibition on the member's ability to "roll-over" the loan beyond the stated maturity date, and thinks federal credit unions should be able to provide loans less than the proposed $200 minimum, if their members have such a need. CUNA also writes that a $20 application fee may be too low to reflect the actual cost of processing the small-loan applications.