(iv) Payday alternative loans (PALs II)-(A) Minimum requirements for PALs II. Notwithstanding any other provision of this section, a federal credit union may charge an interest rate that is 1000 basis points above the maximum interest rate established by the Board under paragraph (c)(7)(ii) of this section provided the federal credit union is offering closed-end credit, as defined in § 1026.2(a)(10) of this title, in accordance with the following conditions:
(3) The federal credit union does not make more than three payday alternative loans provided either under paragraph (c)(7)(iii) of this section or this paragraph (c)(7)(iv) in any rolling six-month period to any one borrower and does not make more than one payday alternative loan provided under either paragraph (c)(7)(iii) of this section or this paragraph (c)(7)(iv) at a time to any borrower;
Federal credit unions should develop minimum underwriting standards that account for a member’s need for quickly available funds, while adhering to principles of responsible lending
(4) The federal credit union does not rollover any payday alternative loan provided under paragraph (c)(7)(iii) of this section or this paragraph (c)(7)(iv), provided that the prohibition against rollovers does not apply to an extension of a payday alternative loan term within the maximum loan term set forth in paragraph (c)(7)(iv)(A)(3) of this section that does not include any additional fees assessed or extend additional credit to the borrower;
The guidance and best practices are intended to help federal credit unions minimize risk and develop a successful program, but are not an exhaustive checklist and do not guarantee a successful program with a low degree of risk
(6) The federal credit union charges a reasonable application fee to all members applying for a new payday alternative loan offered under this paragraph (c)(7)(iv) that reflects the actual costs associated with processing the application, but that in no case exceeds $20;
(7) The federal credit union does not assess a fee or charge, including a non-sufficient funds fee, on the borrower’s account pursuant to the federal credit union’s overdraft service, as defined in § (a) of this title, in connection with any payday alternative loan provided under this paragraph (c)(7)(iv); and
(8) The federal credit union includes, in its written lending policies, a limit on the aggregate dollar amount of payday alternative loans made under paragraph (c)(7)(iii) of this section and this paragraph (c)(7)(iv) that does not exceed an aggregate of 20% of net worth and implements appropriate underwriting guidelines to minimize risk, such as, requiring a borrower to verify employment by providing at least two recent pay stubs.
(B) PALs II guidance and best practices. In developing a successful payday alternative loan program, a federal credit union should consider how the program would benefit a member’s financial well-being while considering the higher degree of risk associated with this type of lending.
(1) Program features. Several features that may increase the success of a payday alternative loan program and enhance member benefit include adding a savings component, financial education, reporting of members’ payment of payday alternative loans to credit bureaus, or electronic loan transactions as part of a payday alternative loan program. In addition, although a federal credit union cannot require members to authorize a payroll deduction, a federal credit union should encourage or incentivize members to utilize payroll deduction.
(2) Underwriting. Federal credit unions should be able to use a borrower’s proof of recurring income as the key criterion in developing standards for maturity lengths and loan amounts so a borrower Start Printed Page 51952 can manage repayment of the loan. For members with established accounts, federal credit unions should only need to review a member’s account records and proof of recurring income or employment.