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The CFPB’s much anticipated rule on payday and small dollar lending is expected out in the next few weeks. 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, sweeps 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. In addition, CUNA included an attached legal opinion from the Dentons law firm explaining how and why the CFPB should make these changes. Both NCUA and the SBA Office of Advocacy, with CUNA’s support, also sent letters to the CFPB seeking changes to the rule for the protection of credit union members.
Among the dozens of concerns identified by CUNA were:
CFPB did not take into account the unique way credit unions operate in this market, nor did they consider the existing regulatory oversight that provides significant consumer protection.
Credit unions typically offer these loans as a member service, often at a loss.
CFPB only provided a limited conditional exemption for NCUA’s PAL program which has been widely recognized as a model for consumer-friendly lending. The proposed rule imposes additional regulatory requirements on and prohibitions to credit unions originating loans under existing NCUA PAL programs.
While CUNA supports curbing the abuses in the market, the CFPB must do so in manner that maintains credit availability to meet consumer demands. Otherwise only those that choose to engage in predatory behavior and otherwise skirt the law will be the sole source for consumers.
While the rule was written to target abuses in the payday lending market, the rule could sweep in numerous other products by credit unions where there is no evidence of abuse by credit unions (auto refinances, auto purchases, credit cards, etc.)
The underwriting requirements for a small $100 loan are in some instances more onerous than that of a $500,000 mortgage.
There have been several reports that the CFPB is now considering a bifurcated rule that focuses primarily on loans that are under 45 days and more flexible underwriting requirements for certain providers. These reports appear to be in line with some of CUNA’s recommendations and could create a path where credit unions are able to continue to offer many of their consumer friendly small dollar loans.
While we are enthused to hear the CFPB is considering this bifurcated approach, only time will tell what exactly the CFPB decides to do. CUNA will closely read and analyze any final rule to fully determine what impact it could have on credit unions. As we continue to hear more, we will keep credit unions updated about any actions taken by the CFPB.
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