WASHINGTON (5/3/13)--While oversight of largely unregulated, predatory payday lenders and their products is overdue, the Consumer Financial Protection Bureau must take steps to avoid crafting one-size-fits-all regulations that would harm credit unions as it addresses payday loan issues, the Credit Union National Association said in a Thursday letter to CFPB Director Richard Cordray.
In the letter, CUNA President/CEO Bill Cheney commended the CFPB's efforts to ensure payday lenders will be subject to appropriate standards and accountability. However, he said, these efforts must focus on unregulated abusers. Cheney also urged the CFPB to "refrain from adopting new rules that apply to all lenders and that tend to eliminate a diversity of approaches that may be adopted by those with no record of abuse or inadequate existing regulation."
The CUNA commentary follows last week's release of a CFPB study that found many payday loan borrowers face a harmful combination of loose lending standards, high costs, and risky loan structures.
Cheney emphasized that credit unions and CUNA are committed to providing safe and affordable alternatives to predatory payday lenders. "These products address a real need for small-dollar, short-term credit by consumers, while discouraging over-dependence on such credit and helping members to move toward financial stability," he added.
Loans from federal credit unions are generally limited to an annual percentage rate of no more than 18%, although there is some flexibility under the National Credit Union Administration's short-term, small amount loan program. That program permits federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. For now, this amounts to an interest rate ceiling of 28%. Most credit unions offering payday loan alternatives also limit fees, provide member financial counseling, and encourage members to open savings accounts.
CUNA plans to meet with the bureau on payday loan issues soon.
The letter also addressed another topic of concern to credit unions: The CFPB's final International Remittance Transfer Rule that was issued this week. (Use the resource link for May 1 News Now story: Final CFPB Remittance Rule Is Effective Oct 28.) "While we remain concerned that the exemption level is far too low, the final rule includes several improvements that CUNA urged the agency to adopt and we want to acknowledge your effort to address those issues," Cheney said. CUNA is surveying member credit unions on how the changes could impact their current remittance practices, and will share the results of the survey with the CFPB, he added.