Compliance: CUNA Final Rule Analysis of payday rule available
CUNA’s Final Rule Analysis of the Consumer Financial Protection Bureau’s (CFPB) short-term, small-dollar loan rule is now available. CUNA prepared the analysis so credit unions can start to digest the rule and figure out how it will affect small-dollar lending at their institution.
The rule was finalized Oct. 4, and contains a number of CUNA-backed improvements over the originally proposed version.
The final rule exempts loans issued in accordance with NCUA’s Payday Alternative Loan (PAL) program, as well as most accommodation loans.
Other types of loans specifically exempted
- Certain purchase money security interest loans;
- Real estate secured loans (including personal property used as a dwelling);
- Credit card accounts;
- Student loans;
- Non-recourse pawn loans;
- Overdraft services and overdraft lines of credit;
- Wage advance programs; and
- No-cost advances.
Credit unions making short-term loans with terms of less than 45 days that require the consumer to pay all or most of the debt at once will still be impacted by the rule, and thus will be subject to strict underwriting requirements.
Long-term balloon loans are also within the scope of the rule, as are high cost loans (with an annual percentage rate that exceeds 36%) that also have a leveraged payment mechanism in place that allows the credit union initiate a transfer of money from the member’s account to satisfy the loan obligation.
Credit unions originating these types of loans must conduct an ability-to-repay test to determine upfront that borrowers can make his or her payments for major financial obligations, required payments under the loan and meet basic living expenses during the term of the loan and for a period of time thereafter.
In addition, the credit union must also consider the member’s previous borrowing history related to covered loans.
Finally, the rule prohibits a credit union from making repeated attempts to withdraw payment from a member’s account after its second consecutive attempt to do so has failed due to lack of sufficient funds. The rule also imposes a number of new disclosure requirements.
Most of the rule becomes effective 21 months from the date of publication in the Federal Register.