| (a) General. Credit unions are encouraged to offer
small-dollar credit products that are affordable, yet safe and sound,
and consistent with applicable laws. The goal in offering these small-dollar
credit products should be to help members avoid, or transition away
from, reliance on high-cost debt. To accomplish this goal, credit
unions should offer products with reasonable interest rates, low fees,
and payments that reduce the principal balance of the loan or extension
of credit.
(b) Definition. For purposes of this section, small-dollar,
short term credit product is defined as a low denomination loan or
extension of credit having a term of 12 months or less, where the
amount financed does not exceed $2,000. Each credit union is responsible
for establishing appropriate dollar limits and terms based upon its
size and sophistication of operations, and its net worth.
(c) Limitation. Accessibility and expediency are important
factors for many members with emergency or other short-term needs.
Therefore, small-dollar credit products must balance the need for
quick availability of funds with the fundamentals of responsible lending.
Sound underwriting criteria should focus on a member's history with
the credit union and ability to repay a loan within an acceptable
timeframe. Given the small dollar amounts of each individual credit
request, documenting the member's ability to repay can be streamlined
and may need to include only basic information, such as proof of recurring
income. The aggregate total of streamlined underwritten small-dollar
credit products outstanding, however, shall not exceed 20% of the
credit union's net worth.
(d) Fees. A credit union may require a member to pay
reasonable expenses and fees incurred in connection with making or
closing a loan. With respect to expenses and fees being assessed on
small-dollar, short-term credit products, the expenses and fees are
presumed to be reasonable if the aggregate total is $20 or less. In
addition, if the credit union refinances a small-dollar, short-term
credit product, it may charge such expenses and fees only once in
a 180-day period. Credit unions may also charge a late fee as permitted
by Finance Code §124.153.
(e) Payments. Credit unions should structure payment
programs in a manner that reduces the principal owed. For closed-end
products, loans should be structured to provide for affordable and
amortizing payments. Lines of credit should require minimum payments
that pay off principal. Excessive renewals or the prolonged failure
to reduce the outstanding balance are signs that the product is not
meeting the member's credit needs and will be considered an unsound
practice.
(f) Required Savings. Credit unions may structure small-dollar
credit programs to include a savings component. The funds in this
account may also serve as a pledge against the loan or extension of
credit.
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