May 25, 2018

NCUA looks to enhance PALs program; NCUSIF distributions expected early in Q3

McWatters, Metsger
NCUA Chairman J. Mark McWatters (left) and Board Member Rick Metsger (right) ask questions about the agency's proposed payday alternative loans (PALs) program changes.

The NCUA Board yesterday issued a proposed rule to enhance credit unions' payday alternative loans (PALs), finalized a rule to clarify involuntary liquidation procedures, and received a financial update on the National Credit Union Share Insurance Fund (NCUSIF) that indicated credit unions would receive distributions from the fund early in the third-quarter.

The NCUA Board will next meet June 21; its open meeting originally scheduled for July 26 has been moved to Aug. 2.

PALs Proposed Rule

The NCUA is looking to amend its general lending rule to provide federal credit unions with an additional option under PALs. PALs II would not replace the current PALs rule, but would be an alternative option. The features that would be different under PALs II include:

·        Loan amount: PALs II could offer loans up to $2,000; PALs I is limited to $1,000.

·        Loan term: PALS II can have a maximum loan term of 12 months; PALs I has a six-month maximum loan term.

·        Membership requirement: PALs II would not have a minimum length requirement for a loan; PALs I loans can only be given to those who have been a member at the credit union for at least one month.

·        Number of loans: There would be no restriction in PALs II for a credit union to only make three PALs loans to a member during a rolling six-month period.

The NCUA's proposal also seeks comments on the possibility of a third PALs program that could include different fee structures, loan features, maturities and loan amounts.

Currently, PALs loans qualify for a safe harbor under the CFPB's payday loan rule. However, changes proposed under PALs II would not qualify for the same treatment potentially creating additional compliance requirements for credit unions offering PALs II loans. During the board meeting, NCUA Chairman J. Mark McWatters and Board Member Rick Metsger agreed to send a letter to the CFPB seeking a safe harbor for PALs II loans.

NAFCU has long advocated for additional mechanisms to allow credit unions to provide more small-dollar loans to members in need. NAFCU also hosted a small-dollar lending working group to explore additional small dollar lending options for credit unions.

CFPB Acting Director Mick Mulvaney has previously said that the bureau plans to revisit aspects of the payday lending rule; earlier this week Mulvaney commended the Office of the Comptroller of the Currency's (OCC) new guidance to encourage banks to offer short-term, small-dollar loans.

Involuntary Liquidations and Claims Procedures Final Rule

The NCUA Board finalized a proposal issued in January to update and clarify its involuntary liquidation procedures for those federally-insured credit unions that enter involuntary liquidation. The rule amends the payout priority provision relating to severance claims and also clarifies the application of the NCUA's regulation on golden parachute payments to severance claims submitted by employees of liquidated credit unions.

Commenting on the proposal in April, NAFCU agreed with many of the changes but also suggested that executive-level severance claims should also be a permitted claim in liquidation. The proposal was finalized without changes.

NCUSIF Quarterly Report

The NCUSIF had a net income of $33.1 million at the end of the first quarter, which was attributed to strong investment income earnings.

First-quarter investment and other income was $72 million, a 42.6 percent increase in income over the $50.6 million increase seen during the first quarter of 2017. Operating expenses were $43.1 million and the provision for insurance losses decreased $4.2 million.

The NCUSIF's equity ratio stands at 1.46 percent, above the normal operating level (NOL) of 1.39 percent. In February, the NCUA announced a distribution to credit unions of $735.7 million. NCUA Deputy Chief Financial Officer Eugene Schied, who gave the report, indicated that distributions would likely come in July or August.

NAFCU's widely used SIF distribution calculator is available for members to download here.