The third agenda item for the NCUA’s May Board Meeting is a “Notice of Proposed Rulemaking, Part 701, Payday Alternative Loans” This discussion will focus on the following:
The NCUA is preparing an amendment to the NCUA’s general lending rule to provide federal credit unions (FCUs) with an additional option to offer Payday Alternative Loans (PALs). This proposal would not replace the current PALs rule, but rather would be an alternative, with differing terms and conditions, for FCUs to offer PALs to their members. Specifically, this proposal (PALs II) would differ from the current PALs rule by modifying the minimum and maximum amount of the loans, eliminating the minimum membership requirement, and increasing the maximum maturity for these loans. All other features of the current PALs rule would be incorporated into PALs II. The proposal would also pose specific questions to solicit comments and feedback from interested stakeholders on the possibility of creating a third alterative (PALs III), which could include differing fee structures, loan features, maturities, and loan amounts
While I’m happy to see the NCUA taking action on PALs, I’m equally concerned that our friends in Washington are making things a little too complicated.
Consumers are attracted to predatory lenders for a number of reasons, not the least of which is the simplicity of both the product and the process. If we want to pull members back from these lenders, we have to match them in simplicity. I can see no advantage to the member in creating multiple PAL options. In fact, I suspect having too many choices will drive members away from credit union short-term lending, back into the welcoming arms of the (very simple) predatory lenders.
Each small dollar loan tells a story that many of us have had to experience or can at least understand. If we can just take a moment to really understand the member journey and the use cases for when a small dollar loan is needed, the product requirements would be clear, simple and lead to common-sense regulation.
At QCash Financial we have seen credit unions confused on how to apply the PAL program in conjunction with the Military Lending Act (MLA) requirements. This confusion has led to lengthy compliance reviews and many legal opinions. Just imagine if we’re forced to reconcile multiple PAL options with the MLA. I predict that credit unions will opt out and not provide the service due to the risk of non-compliance. Credit unions will lose, and so will their members. This is exactly what happened to banks about 15-years ago when regulators were very prescriptive in their small dollar guidelines.
Let’s not add more complexity to a product that is clearly in the credit unions wheel house. I urge you to send a message to the NCUA to use a common-sense approach that is based on real feedback from those credit unions who are leaders in creating financial inclusion through their small dollar loan programs.
Vote for common sense regulation and make your thoughts known. Please join the discussion below.
May 30, 2018
by Ben Morales, QCash CEO