ALEXANDRIA, Va. – NCUA yesterday agreed to lift the interest rate cap on short-term payday loans to 28% – 1,000 basis points more than the limit on all other credit union loans – in an effort to encourage participation in this growing service among credit unions.
The new regulation will set a limit of $20 for a one-time application fee.
“This initiative gives consumers a real and practical alternative to predatory lenders,” said NCUA Chairman Debbie Matz. “It also gives credit unions the tools to enhance their outreach to consumers – particularly those in low-income communities who need greater access to mainstream financial services. At the same time, this new rule offers a business model that makes sense for credit unions.”
The regulation applies to loans with terms up to six months and less than $1,000. It sets minimum membership requirements of one month. The regulation also bars credit unions from requiring borrowers in payday loan programs to participate in payroll deduction.
Currently, about 650 credit unions offer one or more types of payday loans. NCUA plans to collect more substantive data about credit union participation in payday loan programs by adding new disclosures on these types of loans to the 5300 Call Reports.
