The PALs I rule currently limits PALs I loan amounts to a minimum of $200 and a maximum of $1,000

The PALs I rule currently limits PALs I loan amounts to a minimum of $200 and a maximum of $1,000

The PALs II NPRM proposed to allow an FCU to make a PALs II loan for a loan amount up to $2,000 without any minimum loan amount. The Board was particularly interested in allowing a sufficient loan amount to encourage borrowers to consolidate Start Printed Page 51944 payday loans into PALs II loans to create a pathway to mainstream financial products and services offered by credit unions.

Loan Term

Consistent with the proposal to increase the permissible loan amount to $2,000, the PALs II NPRM proposed increasing the maximum loan term for a PALs II loan to 12 months. Continue reading The PALs I rule currently limits PALs I loan amounts to a minimum of $200 and a maximum of $1,000

Many commenters argued against the $2,000 maximum loan amount as too low

Many commenters argued against the $2,000 maximum loan amount as too low

The PALs I rule limits the principal amount of a PALs I loan to not less than $200 or more than $1,000. In contrast, the PALs II NPRM proposed to allow an FCU to offer a PALs II loan with a loan amount up to $2,000 without any minimum loan amount. The Board believes that a higher maximum and no minimum loan amount will allow an FCU to meet the demands of more segments of the payday loan market. Furthermore, the PALs II NPRM provided that a higher maximum loan amount will allow some borrowers to cover a larger financial emergency or to consolidate multiple payday loans into a PALs II loan, thereby providing a pathway to mainstream financial products and services offered by credit unions.

Maximum Loan Amount

These commenters argued that $2,000 is insufficient to cover most large financial emergencies that prompt a borrower to resort to a payday loan or to allow a borrower to consolidate all of the borrower’s payday loans. Some of these commenters, however, also argued that a larger maximum loan amount would be more profitable and allow an FCU to make sufficient interest to cover the cost of this type of lending.

In contrast, some commenters argued that allowing an FCU to charge a 28 percent APR for a $2,000 PALs II loan is a slippery slope to allowing an FCU to operate outside of the usury ceiling. These commenters noted that larger, longer-term loans provide increased revenue to the credit union and, therefore, the Board should not adopt a special exception from the general usury ceiling for these types of products.

While the Board recognizes that $2,000 may be insufficient to cover a larger financial emergency or to allow a borrower to consolidate a considerable number of payday loans, it nevertheless believes that allowing an FCU to offer a $3,000 or $4,000 loan at 28 percent interest is too high a limit and would violate the spirit of the FCU Act. Continue reading Many commenters argued against the $2,000 maximum loan amount as too low

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The outcomes of very bad credit score rating on funding phrases

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