April 04, 2023

CUs issue $846 million through PAL program

ColumnsA new article from Pew Charitable Trusts examined trends in credit union lending trends and found that credit unions issued $846 million in loans through the NCUA’s Payday Alternative Loan (PAL) program in 2022, exceeding the 2019 figure by 32 percent. 

The PAL program, which was created in 2010, was expanded in 2019 to increase access to affordable small loans. In 2022, the amount of PAL loans originated under each quarter represented the highest volume ever originated, ranging from $195 million in the first quarter to $227 million in the fourth quarter. 

“The rapidly changing rate environment has not slowed the rising demand for small-dollar, short-term loans at federal credit unions,” said NCUA Chairman Todd Harper. “With the help of technology, credit unions are being increasingly responsive to this need while operating within current interest rate caps, adhering to the NCUA’s updated supervisory guidance for interest rate risk, and remaining committed to meeting the financial needs of their members—especially those of modest means.”

This increase in lending reflects credit unions’ continued commitment to helping consumers with limited or no credit history obtain loans to quickly cover emergency expenses and avoid costly alternatives such as payday loans and buy now pay, later (BNPL) loans. The article also points out the advantage of automation in helping both credit unions and banks deliver loans to consumers faster than BNPL programs.

NAFCU has long warned against the use of underregulated BNPL programs. A recent CFPB report found that borrowers who use BNPLs often exhibit higher measures of financial distress compared to non-borrowers. The association has urged the bureau to ensure companies that offer them have adequate oversight and consumer protection practices. NAFCU has also urged the NCUA to continue work on a PALs III rule and engage with the CFPB to exempt all PALs loans from the Payday Lending rule.

NAFCU will continue to engage regulators and lawmakers to ensure credit unions have ample resources to provide safe, affordable, and accessible financial products and services to their members.