Removing Barriers Blog

NCUA Strongly Urges the CFPB to Include a Blanket Exemption for PALs
Posted October 11, 2016 by CUNA Advocacy

In a letter from Chairman Rick Metsger, the NCUA weighed in last week on the CFPB’s small dollar loan rule, urging it to exempt the NCUA PAL program in its entirety from the rule. The NCUA noted that as the prudential regulator for federal credit unions, NCUA already ensures that members receive the type of protections the Bureau is seeking to address.

The NCUA, in the letter discussed the many protections credit union members already have when seeking small dollar loans from credit unions.

The NCUA pointed out that, “the Federal Credit Union Act (FCU Act) and its implementing regulations contain protections that apply to all FCUs. For example, all credit extended by FCUs is subject to a rate cap of 18 percent (or 28 percent for PALs) and FCUs are prohibited from charging a penalty to any borrower who prepays an extension of credit. Further, the NCUA Board has worked to promote responsible lending practices, in particular by establishing a regulation that permits FCUs to make PALs that are significantly less expensive for consumers than traditional payday loans. NCUA, through its own rulemaking, determined PALs provide credit union members with a safe, more affordable credit product.”

The NCUA also expressed concerns about the compliance burdens the CFPB’s small dollar rule would place on credit unions.

It stated, “While the proposed rule included a conditional exemption for PALs compliant loans, it would nevertheless increase compliance burdens for credit unions and potentially divest NCUA of the flexibility to adjust its rule as it sees fit to reflect the unique characteristics of credit unions.” It adds, “Additional rules from sister agencies will unnecessarily increase compliance burdens.”

The NCUA also pointed out that the CFPB has no evidence of problems the PAL program is causing for members. It stated, “As the Bureau itself acknowledges, it ‘has not observed evidence that lenders making loans under the NCUA [PALs] program participate in widespread questionable payment practices.’ The Bureau should therefore defer to determinations of the FCU prudential regulator about this product. NCUA closely supervises FCUs for compliance with the PALs regulation, ensuring credit union members receive comparable protections from predatory credit products the Bureau seeks to provide.”

In its letter the NCUA also encourages the CFPB to engage in additional analysis and consider changes and exemptions in other parts of the proposed rule.

Some of the suggestions include:

  • NCUA recommends the Bureau clarify in the final rule that it does not intend to narrow or otherwise alter the circumstances in which a credit union can use a Congressional-authorized statutory lien allowed by the Federal Credit Union Act

  • A modification to the default rate exemption, including a higher default rate.

  • An exemption for small creditors

  • An additional exemption using a payment-to-income ratio
CUNA has been urging the NCUA to educate the CFPB about the many protections credit unions provide to members when offering small dollar loans, and to intervene on behalf of credit union members whose access to safe and affordable credit is in jeopardy as a result of the rule.