Removing Barriers Blog

Bureau Should Use Exemption Authority to Exempt Credit Union Small-dollar Loans From Payday Rule
Posted May 16, 2019 by CUNA Advocacy

Yesterday afternoon, CUNA submitted comments to the Consumer Financial Protection Bureau (CFPB) in response to their proposal to rescind the mandatory underwriting provisions within the payday rule.  CUNA wrote that the short-term, small-dollar (payday) rule would have a detrimental impact on access to consumer-friendly credit union products if implemented unchanged.

CUNA believes the rule fails to strike an appropriate balance between enhancing consumer protection and ensuring credit unions are able to continue serving their members.

“CUNA strongly urges the Bureau to amend the rule to avoid causing any negative effects on credit unions’ small dollar loan programs and, instead, refocus the rule on appropriately reining in unregulated and underregulated non-depository online, payday, and title lenders, particularly entities with a history of bad behavior,” the letter reads. “To achieve this goal, CUNA recommends the Bureau use its broad exemption authority under Section 1022(b)(3)(A) of the Dodd-Frank Act to exempt all small dollar loans offered by credit unions from the 2017 Payday Rule, as credit unions have set themselves apart from other actors in this market.”

The comment letter highlights credit unions’ proven record of providing safe and responsible small-dollar credit and notes the thousands of low- or no-interest loans credit unions made available for members affected by the recent government shutdown are an example of services that might not have been available, or available in limited numbers, if the CFPB’s payday rule was in effect.

Should the CFPB choose to not provide an exemption for all credit union small-dollar loans, CUNA calls on it to:

  • Adopt the proposed rescission of the 2017 Payday Rule’s mandatory underwriting requirement for covered loans, and 
  • Substantially expand the “alternative loan” exemption to cover additional Payday Alternative Loan (PAL) options developed by NCUA, including the proposed PAL II program.

CUNA believes finalizing the proposed rescission of the mandatory underwriting requirements would reduce regulatory burden on credit unions currently offering small dollar loans covered by the rule, but emphasizes numerous times in the letter that “only an express exemption of all credit union small dollar programs would guarantee all credit unions are able to effectively provide their members with access to small dollar credit.”