Removing Barriers Blog

Letter to House Committee Urges CFPB to Exempt CUs from Payday Rule
Posted February 10, 2016 by CUNA Advocacy

Before the House Financial Services subcommittee held its hearing on short-term, small-dollar lending, we submitted a letter highlighting credit union concerns with a “broadsword approach” being taken by the CFPB. The hearing focused on the CFPB’s proposed plan to regulate short-term, small-dollar loans and the effects it could have on the marketplace.

Our letter stated that instead of concentrating on bad actors in the marketplace, the CFPB seems intent on taking a broadsword approach to its forthcoming rulemaking for payday and small-dollar loans, which will include sweeping in credit union products. We fear that products specifically tailored to meet the needs of members could be swept into this rulemaking, and yet another compliance burden will be placed on a service credit unions are offering their members as an accommodation.

The bureau’s overly broad approach to this rulemaking could have a tragic consequence: the very consumers it seeks to protect may be harmed because consumer friendly alternatives offered by credit unions will become more difficult to provide, and less widely available. This will lead to fewer choices and worse options.

Additionally, NCUA already has a Payday Alternative Loan (PAL) program in place. Credit unions offering PALs through this program must cap the interest rate at no higher than 28%, including application fees, and must meet an extensive set of other conditions.

Rather than taking steps to allow more credit unions to offer these safer loans, the CFPB’s outline of proposals for the payday, small-dollar loan rulemaking would actually be a step backwards. The proposals suggest sweeping credit union products into the CFPB rulemaking, and adding even more conditions to the PAL program.

It would be difficult for credit unions already struggling with an unprecedented number of compliance burdens over the past few years to voluntarily take on additional regulatory hurdles in this area, particularly since short-term, small-dollar loans are already offered at breakeven cost, or a loss to the credit union.

The Bureau needs to take into consideration the impact its rules will have on consumers and--as the law provides – exempt credit unions from rules designed to reign in the abusers of consumers. When safe options are eliminated from the financial services marketplace there is no question that consumers lose. For the sake of credit union members and all consumers, we hope that the CFPB will more seriously consider our concerns before it releases its proposed rule for small-dollar and payday loans.