December 18, 2014

Matz asks DoD to exempt PALs from credit rule

NCUA Chairman Debbie Matz Thursday urged the Defense Department to protect payday alternative loans, or PALs, provided by credit unions under NCUA rules under any final rule on credit to servicemembers.

Matz aired her concerns in a letter to DoD about its Military Lending Act proposal, which would apply a 36 percent rate cap to more credit products and require all credit unions to check credit applications against a DoD database to see if the rule's provisions apply to them.

After the proposal was issued in September, NAFCU asked NCUA to consider revising how it defines finance charges as they relate to the federal credit union loan-rate ceiling and the cap on rates charged for short-term, small amount loans, or PALs. NAFCU's concern is that the DoD proposal could affect credit unions' ability to provide credit products to servicemembers.

In her letter Thursday, Matz said PALs "serve as a viable alternative to predatory payday loans and can help members avoid or end dependency on those loans." She added, "In fact, the Department's report on enhancing protections on consumer credit for Service members and their dependents cites PALs as an example of ‘small dollar loans designed to assist Service members who appear to need a way out of unmanageable debt.' "

Matz also raised concerns about the proposal in September. The MLA proposal would cap fees and rates lower than what is allowed currently for PALs.

NAFCU has worked extensively with the DoD and CFPB on financial issues affecting servicemembers, whom credit unions have a long history of serving, and will continue to work with stakeholders and to monitor this issue for its potential effect on credit unions.