WASHINGTON (2/12/16)--As the Consumer Financial Protection Bureau (CFPB) prepares to release a proposed rule for short-term, small-dollar loans, acting bureau Deputy Director David Silberman agreed during questioning Thursday that credit union Payday Alternative Loans (PALs) should be exempt from the proposal.
“I would like to thank the CFPB for agreeing that the National Credit Union Administration’s (NCUA) PAL program should not be preempted in the forthcoming rulemaking for small dollar and payday loans during an exchange at today’s hearing with Rep. Denny Heck (D-Wash.),” said Jim Nussle, president/CEO of Credit Union National Association (CUNA). “We also appreciated the CFPB clarifying that it does not intend to disrupt the kind of thoughtful lending that credit unions do in response to a question from Rep. Keith Rothfus (R-Pa.).
“We understand this to mean that the CFPB does not plan to sweep consumer-friendly credit union small-dollar loans offered by both federal and state-chartered credit unions into its rule, which would ensure that credit unions’ ability to provide safe and affordable alternatives is not inhibited,” Nussle added.
Heck mentioned to Silberman the role of credit unions and community banks in combating predatory loans, and asked if the bureau would be coordinating with regulators on their approaches.
“The National Credit Union Administration has adopted provisions for what they call Payday Alternative Loans to enable credit unions to make a product they think works. The evidence is a significant number of credit unions are taking advantage of that,” Silberman said. “In the outline of the proposals under considerations, we indicated we would allow that to continue as essentially an exception to the general rule.”
Heck followed up by asking if the potential proposals would not preempt the PAL approach, and Silberman responded with, “Correct.”
The NCUA’s PAL program allows credit unions to offer short-term, small-dollar loans with a 28% interest-rate cap including application fees, restrictions about how many loans can be taken out in a set period of time, and several other conditions. Many state-chartered credit unions also offer a small-dollar loan option in compliance with their state laws.
Rep. David Scott (D-Ga.) expressed concerns that the CFPB’s proposal would add a number of regulations that would hurt those consumers it is ostensibly trying to help, by making it harder to access capital. Scott’s concerns were the same ones mentioned by CUNA, in a letter for the hearing’s record submitted Wednesday. CUNA is concerned that a CFPB proposal will take a “broadsword approach” to regulating short-term, small-dollar products, instead of focusing on the bad actors who engage in predatory practices.