If a loan satisfies the criteria for one or more of the exemptions or exclusions, it is not a covered loan and is not subject to the Payday Lending Rule.
Additionally, a lender may not make more than one alternative loan at a time to a consumer
The Payday Lending Rule also includes a partial exclusion from some of the payment-related requirements. 12 CFR §1041.8(a)(1)(ii). If the partial exclusion applies, certain payment withdrawals from consumers’ accounts are not subject to certain payment-related requirements. However, the loan remains a covered loan and subject to some of the Payday Lending Rule’s requirements. This partial exclusion is discussed in the Payday Lending Rule Payment Transfers Questions below and in Section 4.2 of the Small Entity Compliance Guide
The Payday Lending Rule includes two exemptions: (1) an exemption for alternative loans; and (2) an exemption for accommodation payday loans in Bryan with no credit check loans. The exemption for alternative loans is discussed in Payday Lending Rule Covered Loans Question 6 and Question 7 as well as in Section 2.5.1 of the Small Entity Compliance Guide
. The exemption for accommodation loans is discussed in Payday Lending Rule Covered Loans Question 8 and in Section 2.5.2 of the Small Entity Compliance Guide
In order for a covered loan to be exempted as an alternative loan, certain loan term, borrower history, and income documentation conditions must be met.
- The loan is not structured as open-end credit.
- The loan’s term is not less than one month and not more than six months.
- The loan’s principal is not less than $200 and not more than $1000.
- The loan is repayable in two or more payments.
- All scheduled payments are substantially equal in amount and fall in substantially equal intervals.
- The loan amortizes completely during its term.
- The lender does not impose any charges other than the rate and the application fees permissible for federal credit unions under the NCUA’s regulations at 12 CFR §(c)(7)(iii).
An alternative loan also must satisfy borrower history conditions. Before making the loan, the lender must review its own records to determine that the loan will not result in the borrower being indebted on more than three outstanding alternative loans within a period of 180 days. 12 CFR §1041.3(e)(2); comment 1041.3(e)(2)-3. If the lender determines that the loan will result in the borrower being indebted on more than three outstanding alternative loans within 180 days, the loan does not satisfy the borrower history condition and cannot be an alternative loan. 12 CFR §1041.3(e)(2). The lender is only required to review its own records to make this determination. Comment 1041.3(e)(2)-1. 12 CFR §1041.3(e)(2).
A lender also must satisfy an income documentation condition for an alternative loan. During the time period that the lender is making alternative loans, the lender must maintain and comply with policies and procedures for documenting proof of recurring income. 12 CFR §1041.3(e)(3). Comment 1041.3(e)(3)-1.
A lender may establish any procedure for documenting recurring income that satisfies the lender’s own underwriting obligations
Alternative loans are loans that generally conform to the requirements created by the National Credit Union Administration (NCUA) for the Payday Alternative Loan (PAL) program pursuant to 12 CFR §(c)(7)(iii). A loan made by a federal credit union in compliance with the NCUA’s conditions for a PAL I as set forth in 12 CFR §(c)(7)(iii) is deemed to be an alternative loan under the Payday Lending Rule. 12 CFR §1041.3(e)(4).
No. If a federal credit union originates a loan that complies with the conditions for the NCUA’s PAL I program, as set forth in 12 CFR §(c)(7)(iii), that loan is deemed to be in compliance with the conditions and requirements for an alternative loan and is exempted from the Payday Lending Rule. 12 CFR §1041.3(e)(4).