Responsible Small-Dollar Lending in Response to COVID-19

Dear Boards of Directors and Chief Executive Officers:

Your credit union has the potential to provide members responsible credit products that will help them weather the economic impact of the COVID-19 pandemic.  Federal financial regulators, including the NCUA, issued a Joint Statement Encouraging Responsible Small-Dollar Lending in Response to COVID-19 (opens new window) on March 26, 2020.  This letter summarizes the joint statement and reiterates the NCUA’s support of small-dollar lending.

The joint statement expressly encourages credit unions to offer responsible small-dollar loans to consumer and small business members.  The NCUA recognizes that appropriately structured small-dollar loans can help members meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recovery.

Credit unions have a long history of helping members through difficult times with small-dollar loans and other responsible credit.  Your credit union can offer small-dollar loans through a variety of products including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.  Likewise, federal credit unions may make two types of payday alternative loans (PALs I and PALs II).  However, unlike other types of small-dollar loans, PALs may not contain any single payment or balloon payment feature.

Additionally, credit unions are encouraged to consider workout strategies designed to help borrowers who are experiencing financial difficulties, while mitigating the need to re-borrow.  For all products, credit unions should offer loans in a manner that is consistent with safe and sound practices, provides fair treatment of members, and complies with applicable statutes and regulations, including consumer financial protection laws.

The NCUA strongly encourages your credit union to take every step it can to responsibly assist its members with their financial needs during this crisis.

At their discretion, federal credit unions may consult with the NCUA about small-dollar loan products.  If you have any questions about these issues, please contact the NCUA’s Office of Consumer Financial Protection at ocfpmail@ncua.gov, your regional office, or your state supervisory authority.