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September 25, 2012
With the National Credit Union Administration (NCUA) having just released proposed changes to the short-term, small-amount loan (STS) program, it is good to review the current requirements of the program. STS loans allow federal credit unions to offer a viable alternative to predatory payday lending.
To enhance credit unions’ STS programs, the NCUA suggests adding a savings component, reporting payment to credit bureaus, adding a financial education piece and encouraging members to utilize payroll deduction in repaying the loans.
As far as underwriting, the NCUA encourages credit unions to balance the member’s need for quickly available funds while adhering to principles of responsible lending. The underwriting standards should address required documentation for proof of employment or income, such as at least two recent pay stubs.
The NCUA also suggests that for members who are established with the credit union, the only necessary underwriting should be a review of the account to determine that the member is in good standing and for proof of recurring income or employment.
Finally, credit unions should attempt to avoid or minimize risk wherever possible. Two suggestions were to restrict short-term loans to only those members who have direct deposit and to conduct a thorough review of the credit union’s position and ability to safely offer this kind of lending.
Questions? Contact the Compliance Hotline: 1.800.546.4465, email@example.com.
Posted on 09/25/2012View All Articles
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