CFPB Attempts to Clarify PAL Loan Exemption from Payday Rule

Certain loans modeled after the National Credit Union Administration’s Payday Alternative Loan program are exempt from the Consumer Financial Protection Bureau’s new payday loan rule, while others may not be, the CFPB said in a series of questions and answers about the new rule on Tuesday.

The agency reiterated that division, as it attempted to answer questions about the new rule.

The final rule eliminated the underwriting provisions of the strict payday loan rule enacted during the Obama Administration, but other parts of the rule are going into effect. Under the new rule, borrowers would no longer have to demonstrate their ability to repay a loan before having it approved by a payday lender.

Credit unions had sought a total exemption for all PAL loans.

The CFPB said Tuesday that loans made under the original PAL program, commonly known as PAL I loans, are exempt from the payday lending rule. PAL I loans are limited to a maximum of $1,000 and a 6-month maturity.

Loans made by other types of financial institutions may be exempt from the payday rule if they use a PAL I model.

In October 2019, the NCUA approved a PAL II model. Those loans are limited to a maximum of $2,000 and a 12-month maturity.

PAL II loans are not automatically exempt from the CFPB rule, the agency said Tuesday. “Although the Payday Lending Rule exempts loans that federal credit unions originate under the original PAL I program, the exemption is, by its terms, limited to the original PAL I program loans,” the CFPB said.

Critics, including NCUA board member Todd Harper said the larger size of the loan could, conceivably, lock a borrower into a cycle of debt, since they might be required to take out an additional loan to repay the first one.


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