Removing Barriers Blog

Credit Union Hike-the-Hills Provide Opportunities to Voice Concerns on CFPB Small Dollar Rule
Posted September 12, 2016 by CUNA Advocacy

This month, representatives from dozens of credit unions are traveling to Washington, DC to represent the industry on Capitol Hill and federal agencies. With only a few weeks remaining in the comment period for the CFPB’s payday and small dollar loan rule, credit union representatives are using this time to voice concerns about how the CFPB’s overly broad rule could detrimentally impact credit union members, who rely on consumer friendly credit union small dollar loans. Credit unions continue to urge the CFPB to focus the rule on predatory practices in the payday lending market, and to avoid adding new requirements to credit union small dollar loans, which consumers need as a safe and affordable alternatives. They will also continue to urge the CFPB to more narrowly tailor the rule so that totally different types of loans, such as auto refinances, are not impacted. 

Last week in a meeting between the CFPB and several New Mexico credit unions, the credit union representatives expressed many concerns with the complexity of the 1300-page small dollar loan rule. They specifically noted that the underwriting requirements in the CFPB’s proposed Ability-to-Repay test is not appropriate or conducive to credit union lending, and could harm members by: 

  • limiting the number of times CUs can serve as an alternative to other lenders; 

  • requiring credit reports to be pulled, which could potentially harm consumers’ credit scores; and 

  •  causing some credit unions to reevaluate their participation in this market due to rigid rules. 

These representatives also took issue with several aspects of the exemptions to the Ability-to-Repay test, which add unnecessary complexity to credit union small dollar loans that are already being monitored in examinations, and are subject to safety and soundness requirements. Specifically, the reps noted that the 5 percent default rate was too low, that returning application fees would be extremely problematic from an operations perspective, and that not all loans need to be reported all to credit reporting agencies. 

They also outlined some of the many complexities/operational problems associated with the Military Lending Act’s new MAPR calculation and noted that the CFPB’s “all-in” 36 percent APR calculation could cause similar confusion. 

Lastly, the representatives asked the CFPB to produce evidence, through research, data, or complaint information, that might show problems with credit union small dollar loans. The CFPB staff stated that their research is not based on individual providers, but on products such as storefront and online payday loans, and bank deposit advance products. The participants noted that credit union small dollar loans are very different from storefront or online payday loans, particularly since they are lending to their own members, answer to a prudential regulator, and have safety and soundness requirements. The participants noted this additional problem with the rule, nothing that it is a “mismatch” because data from nonbank lenders is not applicable to credit union consumer friendly loans. 

As more credit union representatives head to DC to discuss industry issues, CUNA and nearly 75 percent of the Congress will continue to urge the CFPB to exempt credit unions from this rule, and protect the consumer friendly small-dollar loans on which their members rely.