Several commenters also suggested that the Board permit an FCU to charge a monthly service fee for PALs loans. As noted above, the Board interprets the onedayloan.net/payday-loans-in term “finance charge,” as used in the FCU Act, consistently with Regulation Z. A monthly service fee is a finance charge under Regulation Z. Consequently, the monthly service fee would be included in the APR and measured against the usury ceiling in the NCUA’s rules.
Section (c)(7)(iii)(A)(8) requires an FCU to include a limit on the aggregate dollar amount of PALs I loans in its written lending policies. Under no circumstances ount of PALs I loans be greater than 20 percent of the FCU’s net worth. A set of best practices for PALs I loan underwriting is included as guidance in § (c)(7)(iii)(B)(2).
The final rule amends § (c)(7)(iii)(A)(8) to clarify that the 20 percent aggregate limit applies to both PALs I and PALs II loans. The Board adopted this limit in the PALs I rule as a precaution to avoid unnecessary concentration risk for FCUs engaged in this type of activity. While the Board indicated that it might consider raising the limit later based on the success of FCU PAL programs, the Board has insufficient data to justify increasing the aggregate limit for either PALs I or PALs II loans at this time. Rather, based on the increased risk to FCUs related to high-cost, small-dollar lending, the Board believes that the 20 percent aggregate limit for both PALs I and PALs II loans is appropriate. The final rule includes a corresponding provision in § (c)(7)(iv)(8) to avoid any confusion regarding the applicability of the aggregate limit to PALs I and PALs II loans.
Many commenters asked the Board to exempt low-income credit unions (LICUs) and credit unions designated as community development financial institutions (CDFIs) from the 20 percent aggregate limit for PALs loans. These commenters argued that making PALs loans is part of the mission of LICUs and CDFIs and, therefore, the Board should not hinder these credit unions from making PALs loans to their members. The Board did not raise this issue in the PALs II NPRM. Accordingly, the Board does not believe it would be appropriate under the Administrative Procedure Act to consider these requests at this time. However, the Board will consider the commenters’ suggestions and may revisit the aggregate limit for PALs loans in the future if appropriate.
Another commenter requested that the Board eliminate the aggregate limit for PALs loans entirely for any FCU that offers PALs loans to their members
Other commenters to the PALs II NPRM asked for clarification regarding the underwriting criteria that an FCU must use in connection with a PALs loan. Specifically, commenters requested guidance on whether an FCU should consider a borrower’s debt burden in addition to monthly income or deposit activity when making a PALs loan. The Board has not historically required specific underwriting standards for PALs loans. Rather, the Board has allowed an FCU to develop its own lending policies based on its risk tolerance. At a minimum, however, the Board has recommended that an FCU develop underwriting standards that “account for a member’s need for quickly available funds, while adhering to principles of responsible lending.” This includes examining a borrower’s “proof of employment or income, including at least two recent paycheck stubs” to determine a borrower’s repayment ability as well as “developing standards for maturity lengths and loan amounts so a borrower can manage repayment of the loan.”