Industry trade groups are pushing the Consumer Financial Protection Bureau to carve out exceptions from its payday lending rule for credit unions.
The Credit Union National Association is asking for the agency to exempt all small-dollar loans made by credit unions from the 2017 payday rule, Alexander Monterrubio, senior director of advocacy and counsel, wrote in a comment letter sent Wednesday. However, if the CFPB doesn’t provide that relief, CUNA requested that the regulator rescind the ability-to-repay requirements and expand its definition of alternative loan exemptions to include changes to the National Credit Union Administration’s payday alternative loan (PAL) program.
The National Association of Federally-Insured Credit Unions also requested that the CFPB exempt all credit union loans that fall under NCUA’s PAL program, Kaley Schafer, regulatory affairs counsel, wrote in a letter dated Tuesday. NAFCU also said it was supportive of the agency eliminating the ability-to-repay underwriting requirements, according to the letter.
“NAFCU supports the proposed rule’s rescission of mandatory [ability-to-repay] underwriting requirements, allowing credit unions the ability to develop responsible lending programs with flexible underwriting parameters,” Schafer wrote.
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The ability-to-pay provisions were set to go into effect in August but the agency is now seeking to push that back until November 2020.
CUNA argued that meeting the ability-to-pay rules were a burden to credit unions trying to provide small-dollar loans to members. In its letter, it cited an unnamed credit union in the Pacific Northwest that offered 30-day payday advance loans ranging from $50 to $500 at a 25% interest rate with a $15 application fee. The institution would be “saddled with the high costs associated with conducting the mandatory ability-to-repay … analysis,” Monterrubio wrote.
NAFCU argued that removing the ability-to-repay requirements would provide credit unions with more flexibility for “alternative means of underwriting,” such as reviewing a member’s prior relationship with the institution and their deposit history.
Both groups urged the agency to curb abusive practices from predatory lenders that provide small-dollar loans.
“We think if the bureau does rescind the [ability-to-repay] requirements that does help members because credit unions will be able to operate in this space,” Monterrubio said during a call on Thursday to discuss CUNA’s letter.
Finally, both groups touched on NCUA’s pending changes to its PAL program. Those changes have not been finalized. Loans made under NCUA’s current PAL program generally fit alternative loan exemption requirements for the 2017 CFPB payday rule.
However, NCUA is in the process of adding a second option to its PAL program. Both trade groups urged the CFPB to allow loans made under the second PAL program to be exempt as well.
“The lack of a safe harbor for future iterations of PALs deters credit unions from proving the safe, short-term, small-dollar lending they have been providing to members,” Schafer wrote in the letter.
