Board Proposes Second Payday Alternative Loan Option, Seeks Comment on a Third
Share Insurance Fund Posts $33.1 Million Net Income in First Quarter
ALEXANDRIA, Va. () The National Credit Union Administration Board held its fifth open meeting of 2018 at the agencys headquarters today and unanimously approved two items:
- A notice of proposed rulemaking seeking comment on the agencys proposal to provide federal credit unions with additional options for payday alternative loans.
- A final rule clarifying agency procedures for resolving severance claims arising from involuntary liquidations.
The Chief Financial Officer briefed the Board on the performance of the National Credit Union Share Insurance Fund, which posted a net income of $33.1 million in the first quarter, primarily due to the strong investment income earnings.
New Payday Alternative Loan Would Give Federal Credit Unions Second Option
Federal credit unions would have a second payday alternative loan option under a proposed rule (Part 701) approved by the Board.
The proposed payday alternative loan option would not replace the current payday alternative loan program (opens new window) , created in 2010, but would be a distinct product. This product would have features to help federal credit unions meet specific needs of certain payday loan borrowers that are not met by the current program and provide those borrowers with a safer, less expensive alternative to traditional payday loans.
During the fourth quarter of 2017, 503 federal credit unions reported making payday alternative loans under the NCUAs current rules. At the end of the fourth quarter of 2017, federal credit unions held $38.6 million in payday alternative loans on their books.
The proposed PALs II program would include most of the features of current payday alternative loan program, with four changes:
- Sets the maximum loan amount at $2,000 and eliminates the minimum loan amount.
- Sets the maximum term of the loan at 12 months.
- Does not require a minimum length of credit union membership.
- Does not include time a restriction on the number of loans a federal credit union may make to the borrower in a six-month period, provided the borrower has only one outstanding loan at a time.
Board members also are seeking comment on a possible third option, asking, in particular, for opinions on interest rates, maximum loan amounts, loan terms, and application fees.
Comments on the proposed rule (opens new window) must be received within 60 days of publication in the Federal Register.
Share Insurance Fund Shows Strong Operating Trends
The National Credit Union Share Insurance Fund posted a net income of $33.1 million in the first quarter of 2018, primarily due to the strong investment income earnings.
First-quarter investment and other income was $72.0 million, or a 42.6 percent increase in income over $50.6 million during the first quarter of 2017. Operating expenses were $43.1 million. The provision for insurance losses decreased by $4.2 million.
- The number of CAMEL codes 4 and 5 credit unions increased 2.0 percent from the fourth quarter of 2017 to 200 from 196. Assets for these credit unions to $9.2 billion from $9.6 billion.
- The number of CAMEL code 3 credit unions to 1,054 from 1,072. Assets for these credit unions increased 2.7 percent from the fourth quarter of 2017 to $57.4 billion from $55.9 billion.
Two federally insured credit unions failed during the first quarter of 2018, compared to two in the first quarter of 2017. Total year-to-date losses associated with credit union failures are $1.2 million, compared to $3.7 million in the first quarter of 2017. At this time, fraud is not a contributing factor in either failure in the first quarter.
Final Rule Clarifies Severance Claims Process in Involuntary Liquidations
Credit union employees will have a new process for making severance claims following involuntary liquidations under a final rule (Part 709) approved by the Board.
The rule clarifies the requirements for proof of a claim by an employee for pay or benefits such as unpaid wages, sick time or vacation time and makes a distinction between employees claims and claims by a credit union executive that constitute a golden parachute.