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Payday lending program guidance from NCUA
ALEXANDRIA, Va. (7/30/09)--The National Credit Union Administration (NCUA) in guidance released on Wednesday said that while a number of credit unions are interested in offering short-term loans to their members, credit unions should use these programs to provide their members with a bridge from short-term loans to “more mainstream products and services.” According to the NCUA release, credit unions can avoid the negative perception of payday loan products by “clearly” disclosing “the costs and risks associated with loans” and providing transparent application processes and advertisements to their members. Credit unions should also ensure that their loan products “comply with applicable consumer protection laws, including the Equal Credit Opportunity Act, Regulation B, the Truth in Lending Act and Regulation Z, and other related regulations. Credit unions should also control credit concentration risks through setting “borrower and program limits,” the NCUA said. The NCUA also suggested that credit unions provide terms that encourage their members to take part in more traditional financial programs by limiting the number of payday loans and roll-overs a member may take part in, “imposing substantial waiting periods between loans,” providing financial counseling to members that take out short-term loans, and allowing their members to rescind a loan within 24 hours, free of charge. In instances where an FCU refers its members to a third-party vendor that services payday loans, that FCU would be “in violation” of NCUA rules if the terms of those loans are misleading to consumers. Referring credit union members to a third-party vendor in exchange for finder’s fees would also create a “significant reputation risk” and would run “contrary to the FCU’s central mission to serve its members,” the NCUA release added. To see the NCUA’s full guidance on payday loans, use the resource link.
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