We commend NCUA for its efforts to encourage federal credit unions (FCUs) to offer responsible small loan products. However, we encourage NCUA to think of this program in the context of two realities: 1) short-term loan products, whether they are called "payday loans" or are offered through a credit union, are likely to trap already vulnerable customers in costly debt; and 2) consumers with the ability to repay responsible loans can be served by existing affordable small loan products, and NCUA should actively encourage increased availability of these products.
We recommend that NCUA:
- Ensure FCUs are not offering products with predatory features similar to payday loans. Unless the NCUA actively enforces its regulations regarding permissible fees, some credit unions may decide to forego NCUA's proposed small loan model with its higher interest rate ceiling and instead offer products that include, for example, high application fees that are excluded from the APR calculation.
- Encourage FCUs to broadly offer existing responsible credit products to all members that can be responsibly served, including overdraft lines of credit, credit cards, installment loans, and other small extensions of credit.
- To the extent NCUA seeks to encourage a separate small loan product to serve specifically as a payday loan alternative, revise the proposed requirements to ensure sustainable loan terms and responsible underwriting standards. These include an installment structure, an adequate repayment period of at least three months, and an assessment of the borrower's other obligations in determining the borrower's ability to repay.
- Encourage FCUs to aid small-dollar borrowers in building savings.