CUs should be exempt from rules aimed at abusers, CUNA says

February 11, 2016

WASHINGTON (2/11/16)--As a U.S. House Financial Services subcommittee gears up for today’s hearing on short-term, small-dollar lending, the Credit Union National Association (CUNA) presented its concerns that the Consumer Financial Protection Bureau (CFPB) has taken a “broadsword approach” that could seriously hinder credit unions’ ability to serve their most vulnerable members.

The House Financial Services subcommittee on financial institutions and consumer credit will conduct the hearing today starting at 1 p.m. (ET). The hearing will focus on the CFPB’s proposed plan to regulate short-term, small-dollar loans and the effects it could have on the marketplace.

“Instead of concentrating on bad actors in the marketplace, the CFPB seems intent on taking a broadsword approach to its forthcoming rulemaking for payday and small-dollar loans, which will include sweeping in credit union products,” wrote CUNA President/CEO Jim Nussle. “We fear that products specifically tailored to meet the needs of members could be swept into this rulemaking, and yet another compliance burden will be placed on a service credit unions are offering their members as an accommodation.

“Most concerning,” Nussle added, “the bureau’s overly broad approach to this rulemaking could have a tragic consequence: the very consumers it seeks to protect may be harmed because consumer friendly alternatives offered by credit unions will become more difficult to provide, and less widely available. This will lead to fewer choices and worse options.”

The National Credit Union Administration currently has a Payday Alternative Loan (PAL) program in place. Credit unions offering PALs through this program must cap the interest rate at no higher than 28%, including application fees, and must meet an extensive set of other conditions.

“Rather than taking steps to allow more credit unions to offer these safer loans, the CFPB’s outline of proposals released for the Small Business Review Panel for the payday, small-dollar loan rulemaking would actually be a step backwards. The proposals suggest sweeping credit union products into the CFPB rulemaking, and adding even more conditions to be able to participate in the PAL program,” Nussle wrote.

It would be difficult for credit unions struggling with an unprecedented number of compliance burdens over the past few years to voluntarily take on additional regulatory hurdles in this area, particularly because short-term, small-dollar loans are already offered at break-even cost, or loss to the credit union, Nussle wrote. 

“Consumers deserve a CFPB that--as the law requires--takes into consideration the impact its rules will have on consumers and--as the law provides – exempts credit unions from rules designed to reign in the abusers of consumers,” Nussle said. “When safe options are eliminated from the financial services marketplace there is no question that consumers lose. For the sake of credit union members and all consumers, we hope that the CFPB will more seriously consider our concerns this time before the Bureau releases its proposed rule for small-dollar and payday loans.”