March 27, 2020

FI regulators promote small-dollar lending to support coronavirus recovery

Capitol HillFederal financial institution regulators, including the NCUA, are encouraging financial institutions to offer small-dollar loans to consumers and small businesses impacted by the coronavirus pandemic. The regulators continue to meet regularly to address coronavirus-related challenges; earlier this week, they addressed potential delays to call report filings.

On call report filings, the regulators said they "will not take action against any institution for submitting its [March 31 call reports] after the respective filing deadline, as long as the report is submitted within 30 days of the official filing date."

Institutions that expect a delay in their filing are encouraged to contact their primary federal regulator in advance of the official filing date. What credit unions can do if their call report filing is disrupted by the coronavirus is addressed in the NCUA's newly-released FAQs.

The agencies' statement on small-dollar loans said they "recognize the important role that responsibly offered small-dollar loans can play in helping customers meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recoveries."

The statement also encourages financial institutions to work with borrowers who may experience difficulties repaying a loan as structured. Additional guidance and lending principles for small-dollar lending is expected to be released by the regulators in the future.

The NCUA addressed the statement in a Letter to Credit Unions, noting that "[c]redit unions have a long history of helping members through difficult times with small-dollar loans and other responsible credit." It outlines ways in which credit unions can offer small-dollar loans, including:

  • open-end lines of credit;
  • closed-end installment loans; and
  • appropriately structured single payment loans.  

Federal credit unions can also participate in the NCUA's PALs I or PALs II programs, but the agency noted that "unlike other types of small-dollar loans, PALs may not contain any single payment or balloon payment feature."

Many credit unions participate in the NCUA's payday alternative loans (PALs) program; NAFCU continues to encourage the agency to put in place more flexible parameters for these loans to ensure credit unions can meet members' individual needs. The association has also urged the CFPB to extend its safe harbor for PALs to cover all iterations.

NAFCU is working closely with the NCUA to identify areas of relief for credit unions throughout the coronavirus pandemic and will continue to advocate that the agency do more to ensure institutions can meet the urgent needs of members.