CFPB Should Focus Payday Lending Regulation on Abusers

05/03/2013
  • overview

Also, CUNA surveying members on remittance rule, continuation of services.

Regulation of payday lending should be focused on unregulated, predatory abusers – and not already regulated, responsible credit unions -- as the Consumer Financial Protection Bureau moves forward in this area, CUNA has written to the agency.

In a letter, CUNA President and CEO Bill Cheney also urged CFPB to “refrain from adopting new rules that apply to all lenders and that tend to eliminate a diversity of approaches that may be adopted by those with no record of abuse or inadequate existing regulation.” The letter was sent to CFPB Director Richard Cordray.

The CUNA letter noted that recent regulation by the National Credit Union Administration (NCUA) on payday lending has been designed to facilitate positive payday loan alternatives, and noted that is consistent with the Consumer Bureau’s objectives. “Currently, about 8% of credit unions offer payday loan alternatives, and we support additional flexibility for credit unions to develop products that are well-tailored to their members’ needs and financial situations,” Cheney wrote.

In other comments, Cheney acknowledged the CFPB’s final rule on remittances issued Tuesday. Cheney noted that CUNA remains concerned that the exemption level remains far too low (at 100 transfers). He stated that CUNA is in the process of surveying its members on other changes contained in the final rule (such as a later effective date, advocated by CUNA) to determine whether a number of credit unions that offer international remittance transfers can continue those programs or whether they feel they will have to stop providing this service once the rule takes effect.

The complete text of Cheney’s letter to CFPB’s Cordray follows:

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May 2, 2013

The Honorable Richard Cordray
Director
Consumer Financial Protection Bureau
1700 G Street NW Washington, D.C. 20006

Dear Director Cordray:

On behalf the Credit Union National Association, I am writing to you regarding the agency’s recently released white paper, “Payday Loan and Advance Deposit Products.” In our view, oversight of largely unregulated, predatory payday lenders and their products is overdue, and we commend your efforts to ensure such lenders will be subject to appropriate standards and accountability. CUNA is the largest advocacy organization for credit unions in this country, representing approximately 90% of the nation’s 7,000 state and federal credit unions that serve about 96 million members.

The historic mission of credit unions is to offer products that are consumer-friendly and that serve the needs of credit union members and their communities. Through a combination of credit union initiatives and regulatory actions from the National Credit Union Administration, this is precisely what has been occurring with payday loan alternatives offered by credit unions. These products address a real need for small- dollar, short-term credit by consumers, while discouraging over-dependence on such credit and helping members to move toward financial stability.

The rule adopted by the NCUA in October 2010 requires federal credit unions to adhere to important limitations in providing payday loan-alternatives. The rule seeks to facilitate a fair balance among factors such as safety and soundness, reasonable terms for the borrower, and flexibility for participating credit unions. In November 2012, the agency also sought comments on ways to enhance such lending by credit unions.

Under NCUA’s rule, federal credit union payday-alternative loans are subject to an interest rate cap that is currently 28% for these loans, and they may not charge an application fee of more than $20. Rollover balances are prohibited, and loans must be fully amortizing. Also, a borrower may not have more than one such loan outstanding at a time and no more than three such loans for a rolling six month period from his or her credit union. The maturity of these loans is minimally one month, no longer than six months, and the principal amount cannot exceed $1,000.

Credit unions must maintain written loan policies that provide that no more than 20% of the credit union’s net worth will be concentrated in these loans. NCUA has advised federal credit unions that they can only make such loans available to members if the institution can afford to make these loans. Also, credit unions may develop other programs to meet members’ short term borrowing needs as long as the loans fully comport with all legal requirements and address safety and soundness concerns.

While the requirements of this rule are not identical to the approach taken by bank regulators, they are designed to facilitate positive payday loan alternatives, which is consistent with the CFPB’s objectives. Currently, about 8% of credit unions offer payday loan alternatives, and we support additional flexibility for credit unions to develop products that are well-tailored to their members’ needs and financial situations.

In that connection, in light of credit unions’ current regulatory burdens, and considering NCUA’s efforts to facilitate small-dollar lending, we urge the agency to focus on unregulated abusers. Moreover, we urge the CFPB to refrain from adopting new rules that apply to all lenders and that tend to eliminate a diversity of approaches that may be adopted by those with no record of abuse or inadequate existing regulation.

We have requested a meeting with you to discuss several credit union issues, and we hope to include this matter on our agenda.

Another topic of concern to credit union providers is the agency’s final International Remittance Transfer Rule that was issued Tuesday. While we remain concerned that the exemption level is far too low, the final rule includes several improvements that CUNA urged the agency to adopt and we want to acknowledge your effort to address those issues. We are in the process of surveying our members on these changes in an effort to determine whether a number of credit unions that offer international remittance transfers can continue those programs or whether they feel they will have to stop providing this service once the rule takes effect. We will share the results of our survey with you and the agency when they are available.

Thank you for your consideration of the concerns raised in this letter and we look forward to meeting with you soon.

Best regards,
Bill Cheney
President & CEO
Credit Union Nat. Assn. (CUNA)
Washington, DC

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