Removing Barriers Blog

CUNA and Leagues See Major Improvement in Updated Small Dollar Rule
Posted October 05,2017 by ManojBhoi

As anticipated, today the Consumer Financial Protection Bureau released its final rule on payday and small dollar lending. CUNA is analyzing the rule but it appears that many of our concerns and specific recommendations have been addressed. CUNA had numerous concerns with the rule as originally proposed, not least of which was that it could rob consumers of safe and affordable credit union alternatives to predatory loans.  

CUNA and the Leagues have been highly active in seeking changes to the CFPB’s rule which was proposed last summer. The rule, as originally proposed, swept in a number of credit union small dollar loan products and even certain products not similar to a payday loan such as auto refinance loans. CUNA filed a 61-page comment letter outlining why the CFPB should make significant changes to the proposed rule to ensure that credit unions are not impacted.  

Our initial read of today’s rule indicates that there are many positive improvements to the rule including that: 

  • The NCUA PAL Program is exempt
  • There is an exclusion for any provider doing fewer than 2500 otherwise-covered loans and which represent no more than 10% of revenue. 
  • Loans that are over 45 days that do not have balloon payments appear to be exempt for the most part (unless the APR which is no longer 'All-In' is above 36 percent) 
  • The notice and debit requirements that apply to most covered loans do not apply to loans from credit unions that make loans to their own members if the payments do not trigger overdraft or NSF fees. 
  • Certain Salary advances are exempted 
  • CFPB is using Regulation Z to define cost of credit rather than its previously proposed definition of a new All-in APR  
  • It appears very unlikely that any auto refinance loans will be included as covered loans under the improved consideration of what is included  

Credit unions that offer loans with any of the following characteristics could be covered by the rule:

  • Credit unions that offer loans under 45 days. (Credit unions that do offer such loans can consider whether simply adjusting loan length could exclude their program from coverage of the rule)
  • Loans that are considered balloon loans. (For any credit unions that do offer balloon loans, they could consider avoiding the requirement of a “full-payment test” with covered loans by modifying their loans to allow the borrower to pay down the principal more gradually, rather than in one larger lump sum)

We will continue to analyze the rule to determine its full impact and our but are very pleased that the CFPB addressed many of our concerns. CUNA’s Compliance department is doing a deep dive into the rule and will be posting a more detailed analysis on the COMPblog.

Last year, CUNA and the Leagues met with the CFPB over a dozen times and filed extensive comments outlining the problems with the original proposal. The most recent meeting was last Wednesday, in which CUNA's Consumer Protection Subcommittee met with several top CFPB staff.