Rick Metsger, board chairman of the National Credit Union Administration (NCUA), has asked the Consumer Financial Protection Bureau (CFPB) to fully exempt payday alternative loans (PAL) from its final payday lending rule.
In a letter to the CFPB, Metsger wrote that PALs offered by federal credit unions (FCUs) comprise a "safe, more affordable product" than typical payday loans, which can usually burden consumers with unmanageable debt.
"As the prudential regulator for federal credit unions, NCUA already ensures that members receive the type of protections the Bureau is seeking to address," Metsger wrote in the letter. "The Bureau should therefore defer to determinations of the FCU prudential regulator about this product."
Metsger added, however, that his agency "fully supports" the goals of the proposed rule, but cautioned that additional rules from sister agencies will "unnecessarily increase" compliance burdens.
Metsger also noted that CFPB has acknowledged it "has not observed evidence that lenders making loans under the NCUA program participate in widespread questionable payment practices."
In 2010, NCUA approved a PAL rule that included, among other conditions: that loans of between $200 to $1,000 may be issued to borrowers who have been credit union members for at least one month; payment terms of one to six months; a maximum $20 application fee; the allowance of no roll-overs; and an interest rate of up to 28% APR if all other conditions are met.
In June of this year, CFPB issued its proposed rule to regulate loans with terms of less than 45 days and those with terms longer than 45 days that have annual percentage interest rates greater than 36%, and are either paid from a consumer's account or income or are secured by the consumer's vehicle. The proposed rule also covers some longer-term loans at less than 36% interest and includes only a conditional exemption for loans under NCUA's PALs regulation.
Aside from the PAL exemption, Metsger also urged a "small creditor" exemption which would cover all creditors making fewer than a threshold number of otherwise covered transactions over a certain period.
Trades Sound Off
In response to Metsger's request for PAL exemption, Alexander Monterrubio, director of regulatory affairs at the National Association of Federal Credit Unions (NAFCU), commented that credit unions cannot be expected to offer their members the same excellent products and services while also facing inconsistent regulation from multiple regulators.
CFPB, he added, must provide "an explicit exemption" for credit unions in the final rule in order to avoid punishing good actors along with bad.
Credit Union National Association (CUNA) also weighed in on Metsger's entreaties.
"We agree with NCUA that the Bureau should consider a complete PALs exemption in their final payday lending rule, so as not to impede this important growth and service to members," said Jim Nussle, CUNA's president and CEO. "We also appreciate the NCUA's recognition and education of the CFPB that other conditional exemptions and parts of the CFPB's proposal are not workable for credit unions, and that the CFPB's proposal needs reform to ensure that credit union members can continue to rely on credit unions for safe and affordable alternatives."
According to the NCUA, federal credit unions issued almost $125 million in PAL loans in 2015, a 7.2% jump from the fourth quarter of 2014.
Comments on the proposed rule are due by October 7.
