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Cornerstone Comments on NCUA's PAL II Proposal
Monday, August 6, 2018 1:25 PM

Cornerstone Credit Union League has sent its comment letter to the National Credit Union Administration regarding its support for proposed revisions to Part 701, the proposed Payday Alternative Loans II (PAL II) rule.

Once PAL II is adopted, Cornerstone urges NCUA to consider additional flexibility, as discussed in detail in the letter. Suzanne Yashewski, SVP regulatory compliance counsel, wrote that Cornerstone appreciates NCUA's interest in providing additional flexibility in the area of short-term, small-dollar loans.

"The credit union community is greatly disturbed by the practices of the average 'payday lender' and, therefore, we seek to offer more affordable alternatives to our members," Yashewski wrote. "Currently, it is estimated that only about 9 percent of credit unions are using the existing PAL program, likely because the compliance and entrance costs can outweigh the potential benefits to consumers."

Cornerstone supports adoption of the proposed PAL II program. The increased flexibility in the areas of the loan amount, membership requirement, loan terms, and number of loans allowed will encourage more credit unions to offer such programs. The additional flexibility will increase consumer choice for lower cost payday loan alternatives without sacrificing consumer protection or safety and soundness of credit unions.

Yashewski laid out a number of recommendations, including:

  • Increasing the permissible loan amount up to $4,000 and extending the loan term to up to 36 months;
  • Increasing the permissible application fee from $20 to $50, set with a plan to increase overtime with inflation;
  • Raising the interest rate ceiling from 28 percent APR to 36 percent APR (or 1,800 basis points above the maximum interest rate allowed by NCUA) to coincide with similar programs authorized by the Bureau of Consumer Financial Protection, the Federal Deposit Insurance Corporation, and the Department of Defense Military Lending Act; and
  • Exempting low-income designated credit unions and Community Development Financial Institution (CDFl) credit unions from the 20 percent net worth limit.

"The BCFP's 'ability to repay' determination was based on very high-cost loans with great risk to consumers," Yashewski said. "Credit union PAL loans are lower risk due to more reasonable pricing. Imposing BCFP-type ability to repay requirements would negatively impact credit union pricing, ultimately hurting the borrower. Therefore, we recommend against imposing such requirements. Credit unions would continue to implement underwriting guidelines."

To view the letter in its entirety, visit Cornerstone's compliance pages. To access this site, you'll need your Cornerstone CUpassport ID and password.

If you need help in crafting comment letters, or if you have questions about this proposal, please contact Suzanne Yashewski at syashewski@cornerstoneleague.coop or 512-853-8516.