NASCUS to CFPB: Let States Lead on Payday Lending

The National Association of State Credit Union Supervisors is encouraging the Consumer Financial Protection Bureau to let states take the lead when it comes to payday lending regulation.

In a comment letter to the CFPB, NASCUS suggested the bureau's payday lending proposal will harm state-chartered credit unions and impede their ability to make certain types of loans. CFPB, NASCUS said, should provide exemptions for states that have "comparable regulation" so as to avoid increasing the regulatory burden on an "already heavily regulated class of entities."

For states that have short-term, small-dollar loan regulation already in place, NASCUS said, CFPB should defer to each state's authority to effectively regulate and supervise those products.

"NASCUS believes a state's legislature and state supervisory agency are in the best position to determine the most effective means to protect its consumers within the long-standing parameters of existing credit union regulation and supervision," the letter said.

Credit unions were looking out for consumers long before the CFPB was established and the movement has a history of encouraging innovation in products and services that benefit consumers while still maintaining sound business practices, NASCUS told the bureau. "Many states currently have consumer protection regulatory schemes in place to address the bad actors and encourage provision of fair and reasonably priced short-term consumer credit," the agency wrote, offering Colorado as an example of a state that put in place legislation in 2010 to protect borrowers who utilize short-term, small-dollar loans.

The bureau's payday lending proposal has been a hot-button issue since its release, with credit unions continuing to call for an industry-wide exemption from CFPB oversight – or, at the very minimum, an exemption for CU PAL products – while politicians debate whether or not the proposal goes far enough. Earlier this week, Republican attorneys general from 18 states sent the CFPB a letter pushing back against the plan, while eight Democratic AGs commended the bureau in a letter of their own.

While NASCUS said it supports the CFPB's desire to curb abusive practices, the group emphasized that the current proposal on payday lending could harm institutions that offer payday alternative loan products and – due to underwriting guidelines specified in CFPB's proposal – credit unions could incur higher costs than they currently do. And those costs, NASCUS added, would be passed on to the consumer or lead an institution to shut down those sorts of programs, leading consumers in need of that sort of product at the whims of unscrupulous payday and title lenders.

The full comment letter from NASCUS to CFPB is available online.