After a 60-day comment period, NCUA issued its final rule regarding short-term, small amount loans on September 24, 2010. This amendment to the general lending rule enables Federal credit unions (FCUs) to offer short-term, small amount loans (STS loans) as a viable alternative to predatory payday loans by charging a higher interest rate than is permitted under the general lending rule. However, it also imposes limitations on the permissible term, amount, and fees for these types of loans. According to the Credit Union National Association’s (CUNA’s) analysis, the final rule will:
- Allow FCUs to impose an APR of up to 1000 basis points (10 percentage points) above the usury ceiling for STS loans. This will allow an APR of 28% based on the current 18% ceiling.
- Permit FCUs to charge an application fee that reflects the actual cost of processing these loan applications not to exceed $20.
- Set a minimum maturity of one month, and a maximum of six months.
- Set a minimum loan amount of $200, and a maximum of $1,000.
- Require FCUs to place a cap on the total dollar amount of STS loans not to exceed 20% of total net worth.
- Require FCUs to set a membership length eligibility requirement of at least one month.
CUNA’s analysis also provides background information and other guidance as described in the final rule. Federally chartered REAL Solutions credit unions that currently offer a closed-end payday loan alternative (PDLA) product will need to comply with these new requirements by October 25, 2010. While many credit union PDLAs already meet these specifications, some FCUs will need to scale back application fees, extend maximum maturities, and/or ensure that no more than three loans are provided to a single member in any rolling six-month period. If you need assistance evaluating your PDLA product, please contact your REAL Solutions League Liaison or Field Coach.
NCUF’s REAL Solutions® Payday Loan Alternative Implementation Guide will be revised to include the NCUA short-term, small amount loan rule.