The PALs II NPRM proposed to allow an FCU to make a PALs II loan for a loan amount up to $2,000 without any minimum loan amount. The Board was particularly interested in allowing a sufficient loan amount to encourage borrowers to consolidate Start Printed Page 51944 payday loans into PALs II loans to create a pathway to mainstream financial products and services offered by credit unions.
Consistent with the proposal to increase the permissible loan amount to $2,000, the PALs II NPRM proposed increasing the maximum loan term for a PALs II loan to 12 months. The PALs I rule currently limits PALs I loan maturities to a maximum term of 6 months. The increased loan term would allow a borrower sufficient time to repay their loans, thereby avoiding the types of borrower payment shock common in the payday lending industry that force borrowers to repeatedly rollover payday loans. The PALs II NPRM noted that an FCU would be free to choose an appropriate loan term, provided the loan fully amortized, and encouraged FCUs to select loan terms that were in the best financial interests of PALs II borrowers.
The PALs II NPRM also proposed to allow an FCU to offer a PALs II loan to any member regardless of the length of membership. The PALs I rule currently requires a borrower to be a member of the credit union for at least one month before receiving a PALs I loan. The PALs II NPRM eliminated the membership time requirement to allow an FCU to make a PALs II loan to any member borrower that needed access to funds immediately and would otherwise turn to a payday lender to meet that need. Nevertheless, the PALs II NPRM still encouraged FCUs to consider a minimum membership requirement as a matter of prudent underwriting.
Number of Loans
Finally, the PALs II NPRM proposed to remove the restriction on the number of PALs II loans that an FCU may make to a single borrower in a rolling 6-month period. The PALs I rule currently prohibits an FCU from making more than three PALs loans in a rolling 6-month period to a single borrower. An FCU also may not make more than one PALs I loan to a borrower at a time. The Board suggested removing the rolling 6-month requirement for PALs II loans to provide FCU’s with maximum flexibility to meet borrower demand. However, the PALs II NPRM proposed to retain the requirement from the PALs I rule that an FCU can only make one loan at a time to any one borrower. Accordingly, the PALs II NPRM did not allow an FCU to provide more than one PALs product, whether a PALs I or PALs II loan, to a single borrower at a given time.
Request for Additional Comments
In addition to the proposed PALs II framework, the PALs II NPRM asked general questions about PAL loans, including whether the Board should prohibit an FCU from charging overdraft fees for any PAL loan payments drawn against a member’s account. The PALs II NPRM also asked questions, in the nature of an ANPR, about whether the Board should create an additional kind of PAL loan, referred to as PALs III, which would be even more flexible than what the Board proposed in the PALs II NPRM. Before proposing a PALs III loan, the PALs II NPRM sought to gauge industry demand for such online payday KY a product, as well as solicit comment on what features and loan structures should be included in a PALs III loan.