In a recent Albuquerque Business First article, New Mexico credit union leaders shared their concerns about the compliance cost of a proposed Consumer Financial Protection Bureau rule designed to protect consumers from unfair practices by predatory lenders.
The rule would designate it an "abusive and unfair practice" for lenders to make short-term loans without determining that a consumer has the ability to repay it.
Lenders would be required to increase compliance checks and verifications on two types of loans. One is short-term loans that can include 14, 30, and 45-day terms with or without a vehicle title as collateral. The other includes longer-term loans where the annual interest rates exceed 36 percent, and there is a lien on a vehicle or some form of "leveraged payment mechanism."
That “overly broad net” would hamper credit unions with undue compliance requirements, adding to an already steep regulatory burden, according to Paul Stull, president/CEO of the New Mexico Credit Union Association.
“It’s calling for doing more underwriting, complying with more regulations, increasing the number of forms, and increasing the number of compliance supervisory checks and double checks that go into this,” said Stull.
Credit unions' annual cost compliance cost for federal regulation is more than $7.2 billion nationally, including $57 million that New Mexico institutions pay, according to Stull.
Part of the business model of smaller financial institutions includes helping borrowers avoid or pay off predatory loans elsewhere, the new CFPB rule could hurt those efforts. Winona Nava, president/CEO of Guadalupe CU, Santa Fe, told Business First.
CUNA has been analyzing the proposed rulemaking and recently held a membership webinar on its potential effects.
CUNA encourages credit unions to submit their feedback by Aug. 31, and comments are due to the CFPB by Sept. 14.