Back in October last year, the Consumer Financial Protection Bureau announced its new 1,690-page-long payday lending rule that included several exceptions for credit unions.

The rule, while setting limits on payday lending, does provide several exceptions. The final rule exempts loans issued by credit unions in conformance with the National Credit Union Administration for payday alternative loans.

These PAL I loans allow members of federal credit unions to borrow small amounts of money at a lower cost than traditional payday loans, and repay the loan over a longer period. The loans must be issued to members of credit unions who have been with the union at least one month. They are for amounts from $200 to $1,000 with a maximum annual percentage rate of 28% with an application fee of no more than $20. It must be fully repaid after one to six months, and no rollovers are allowed. Borrowers cannot have more than three PALs within a six month period.

But now, the National Association of Federally Insured Credit Unions wants more.

NAFCU sent a letter to CFPB Acting Director Mick Mulvaney, calling on it to exempt all credit union PAL loans. Currently, the bureau only exempts PAL I loans, not the newer PAL II loans.

“Expanding the safe harbor exemption to encompass loans compliant with any of NCUA’s PALs programs will assist in widespread adoption of the PALs program amongst credit unions,” NAFCU said in its letter. “Expansion of the safe harbor exemption will give credit unions peace of mind knowing that they are in compliance with both the NCUA and the bureau's rules.”

The PAL II loans, proposed in June, would permit loans up to $2,000 with no minimum, and have a maximum loan term of up to 12 months. These new loans would also not have the 30-day membership requirement. There would also be no limit to the number of PAL II loans consumers could use in a six-month timeframe, but they would only be permitted to hold one PAL II loan at a time.

“Alternatively, NAFCU recommends that at a minimum, the bureau expand the safe harbor exemption to encompass PALs II when finalized by the NCUA,” the letter said. “NAFCU respectfully requests that the bureau work with the NCUA in expanding the safe harbor exemption.”

The letter argues that credit unions are responsible lenders that provide safe, accessible and low cost loans to meet the demands of their members’ short-term, small-dollar needs. It explained that in a recent survey, 40% of adults reported they would need to borrow money or sell something in order to cover an unexpected emergency expense of $400 dollars or more.

“According to NCUA’s proposed rule, PALs II may fall within the bureau's alternative loan exemption; however, any future PALs programs are afforded no protection from the rule,” the letter stated. 

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