news.cuna.org/articles/111048-cuna-urges-withdrawal-of-payday-proposal-or-cu-exemption

CUNA urges withdrawal of payday proposal, or CU exemption

October 5, 2016

The Consumer Financial Protection Bureau’s (CFPB) proposed rule on short-term, small-dollar loans could rob consumers of safe and affordable alternatives to the predatory lenders in the market, CUNA wrote to the bureau Wednesday in its comment letter on the proposal.

In a 61-page letter to the CFPB, with an attached 21-page legal support letter from the Dentons US LLP, CUNA urges the bureau to withdraw its proposal or exempt credit unions as a class due to the many consumer dangers in the proposed rule.

In lieu of that, CUNA asks the bureau to consider addressing the substantial shortcomings of the proposed rule with several recommendations outlined in its letter, and asks the CFPB to publish a revised proposal for public comment.

In lieu of that, CUNA asks the bureau to consider addressing the substantial shortcomings of the proposed rule with several recommendations outlined in its letter, and asks the CFPB to publish a revised proposal for public comment.

“The rule is overbroad and misses the mark of enhancing consumer protections because it fails to consider consumers’ needs, particularly those of modest means with financial challenges, and does not provide a clear and concise path to allow credit unions to meet these needs,” said Jim Nussle, president/CEO of CUNA. “The rule would have a detrimental impact on credit union programs that are widely recognized as being consumer-friendly, even by the CFPB itself. This does not achieve greater protection for members, but instead will limit their options and could force them to turn to much worse options.”

The CUNA/league system has met repeatedly with the CFPB on this issue because of their concern for members’ ability to have safe and affordable credit options.

CUNA’s letter details several problems with the proposed rule, including:

  • 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 as a member service and their income is strikingly low or in many instances done at a loss;
     
  • CFPB only provided a limited conditional exemption for NCUA’s Payday Alternative Loan (PAL) program which has been widely recognized as a model for consumer friendly lending. The proposed rule imposes significant additional regulatory requirements on and prohibitions to credit unions originating loans under existing NCUA PAL programs;
     
  • Credit unions will be unable to fill the gap left by storefront payday lenders due to the immense regulatory burden and complexity of the over 1,300-page rule;
     
  • While CUNA supports curbing the abuses in the market, 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 sweeps 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;
     
  • CFPB Director Richard Cordray has stated that the bureau does not intend to disrupt credit union lending, and he has held credit unions out as an example of how this lending can be done safely and affordable. The rules should be tailored to allow those practices to continue for the benefit of consumer, and they should not be unduly restricted by an overly broad but well-intentioned rule;
     
  • The five studies cited by the CFPB as justification for the rule contain extremely limited, if any, information about credit union lending; and
     
  • Based on data downloaded from the CFPB’s Consumer Complaint Database, CUNA found that only four of the 4,493 consumer complaints regarding payday loans filed between November 6, 2013 and September 27, 2016 involved a credit union. This represents 0.088% of payday lending complaints and approximately 0.0006% of all complaints the CFPB has received to date.

CUNA is advocating the CFPB withdraw the rule; or provide a blanket exemption for credit unions (including PALs). Absent this, CUNA believes the bureau should make significant changes to the rule and re-propose it for public comment.