Removing Barriers Blog

Credit Unions Strongly Oppose Arbitrary Limits on Their Ability to Provide Consumer Friendly Products and Services
Posted October 05, 2016 by CUNA Advocacy

In response to the CFPB’s more than 1300 page rule released in June, which sweeps in consumer friendly credit union products and services, CUNA filed a comprehensive 61 page letter today advocating for the protection of credit union members. Despite little or no research on credit union small dollar lending, and despite a total of only four of the 4,493 consumer complaints regarding payday loans involving a credit unions, the CFPB proposed sweeping credit unions into the rule under its Unfair and Abusive sections of its UDAAP authority. 

CUNA’s comment letter makes four key points: 

  • Credit unions were established, in part, to provide access to small dollar credit. 

  • CFPB should consider credit unions’ different organizational and regulatory structure. 

  • Abuse in the small dollar lending market should be curbed and responsible lenders should be held to a standard separate from abusers of consumers. 

  • The final rule should ensure credit unions are able to continue to serve their members in a safe and affordable manner. 

It also provides a detailed analysis of the unnecessary compliance burdens imposed on credit union consumer friendly products, and outlines how this could impact members’ ability to access this safe and affordable credit. CUNA expresses serious concerns that compliance burdens are proposed to be added to the NCUA PAL program, which could impede its growth.  

The letter notes the “exemption” proposed for the PAL program is not an effective way to incentivize small dollar lending by financial institutions, and instead is a step in the opposite direction that will make it harder for credit unions to participate in the PAL program. It further points out that the CFPB’s positive public statements about the PAL program,  as well as its analysis about the program in the rule, are incongruent with the rule text, which in practicality makes arbitrary changes and adds new requirements to an already consumer friendly lending model. 

CUNA also highlights that the five percent default exemption misses the mark, and would need to be simplified and modified to facilitate credit union lending. The letter also takes issue with the proposals broad expansion well beyond products that are considered small dollar lending. It expresses particular concern that members could be impacted if auto refinance loans are swept into this rule. It also asks for clarification about whether auto purchases are subject to the rule, and advocates that all credit cards should be exempt from this proposal. 

The comment further highlights to the bureau that the new definition of “All-in APR” in itself could create confusion and burdens for both credit unions and members because of its conflict with other federal laws. The letter highlights the burden of determining applicability and developing new policies and procedures, training, and updating forms will extend beyond covered loans. 

So as not to disrupt credit union lending, a goal Director Cordray has stated he has, CUNA urged the CFPB to use its Section 1022 Dodd-Frank Act exemption authority to exempt credit unions entirely from this rule. We note that this is the only way to ensure protection of credit union members. If they refuse to do this, CUNA recommended that the CFPB withdraw the proposal. 

CUNA also suggested that the CFPB engage in additional and more sufficient SBREFA analysis about the impact this rule could have on small credit unions and their members. Alternatively, we suggested 

re-proposing this rule as an ANPR because CFPB staff has indicated they are seeking feedback on proposed ideas on which the Bureau has not completed comprehensive research. 

CUNA ends the letter by stating that the best solution for all consumers would be a rule narrowly tailored and focused on consumer abuse in the payday, online, and title loan market that allows consumer friendly actors to continue to operate as they do today. It adds that if the CFPB were to narrow its rule to focus on eliminating predatory behavior, credit unions – the original consumer protectors in the financial services marketplace – would without question be some of the strongest supporters. 

CUNA has been urging the CFPB to intervene on credit unions behalf, and NCUA expressed similar concerns with the proposal today, which can be found here