CFPB's Payday Lending Rule is Good News for CUs
After several years of staunch advocacy efforts by the Michigan Credit Union League (MCUL) and the Credit Union National Association (CUNA), yesterday, the Consumer Financial Protection Bureau (CFPB) finalized a rule that will help curb payday debt traps by requiring predatory lenders to determine upfront whether consumers can afford to repay their loans.
This rule will cover loans that require borrowers to repay all or most of the debt at once, including payday loans, auto title loans, deposit advance products and longer-term loans with balloon payments. Among other provisions to protect consumers, lenders will be subject to performing a “full-payment test” to see whether repayment within a short period of time is manageable alongside other living expenses.
While credit unions offer loans of all sizes, they are required through federal regulation to calculate a borrower’s ability to repay. Payday lenders have not been subject to the same state and federal lending requirements that are imposed on traditional lenders.
Michigan credit unions all too often see the negative impact on consumers of payday lending products. Offering higher-dollar loans with unreasonable interest rates and inadequate consumer protections preys on a vulnerable group of individuals. These transactions have frequently put consumers at significant financial risk, with fees often quickly accumulating for consumers without substantial financial resiliency. Credit unions work around the calendar through debt consolidation, financial counseling and teaching budgeting skills to help members before they descend into a spiral of debt. Unfortunately, for others, bankruptcy is the only option.
The CFPB said they developed the payday rule over five years of research, outreach and a review of more than one million comments on the proposed rule. Years of tireless advocacy from CUNA, MCUL and credit unions have been heard. This is a big step forward for the credit union community, and we will continue to make our voices heard in order to provide for a healthier financial landscape in Michigan.
Find more details about CFPB's final rule here.Go to main navigation