The PALs I rule in 2010, the Board amended the NCUA’s general lending rule, В§ 701.21, to provide a regulatory framework for FCUs to make viable alternatives to payday loans. 9 The PALs I rule, В§ 701.21(c)(7)(iii), permits an FCU to offer to its people a PAL loan, a kind of closed-end credit, at a greater APR than many other credit union loans so long as the PAL has certain structural features, produced by the Board, to safeguard borrowers from predatory payday financing practices that may trap borrowers in repeated borrowing rounds.
An FCU might also refinance a conventional pay day loan as a PALs I loan.
As an example, the PALs I rule eliminates the potential for вЂњloan churning,вЂќ the training of inducing a debtor to settle a preexisting loan with another loan without significant financial benefit into the debtor, by prohibiting an FCU from rolling one PALs I loan into another PALs I loan. 10 whilst the Board formerly explained, вЂњthese provisions of the PALs I rule will work to curtail an associate’s repeated usage and reliance with this variety of item, which regularly compounds the user’s currently unstable economic condition . . . (više…)