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Michigan Credit Union League

MCUL and CUNA React to CFPB's Proposed Rule on Payday, Small Dollar and Auto Loans

Credit unions may have good reason to be concerned with a new rule proposed by the Consumer Financial Protection Bureau (CFPB).

Last month, the CFPB released the rule proposal “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” In short, the proposal covers two loan categories: short-term loans (loans that are 45 days or fewer) and longer term loans (longer than 45 days, with qualifications*).

The CFPB’s proposed rule has the potential to affect credit unions that (1) participate in the National Credit Union Administration’s (NCUA) Payday Alternative Loan (PAL) program or those that offer small dollar or short-term loans at state-chartered institutions, (2) those that offer auto refinance loans and (3) credit unions that offer multi-feature open-end lending plans, unsecured loans or shared-secured loans.

The Bureau’s aim with the proposal is to restrict lenders from giving out loans that consumers do not have the ability to repay. For instance, there would be restrictions on loans that target customers with current or recent outstanding loans.

While the rule is intended to protect consumers, the Credit Union National Association (CUNA) is concerned that the Bureau’s proposal is misguided due to how it may adversely affect core products and services of the credit union industry, which would in turn negatively impact consumers.

According to CUNA, the CFPB’s best course of action is to “target predatory lending practices but not sweep in consumer friendly credit union small dollar loan products.” In other words, CUNA believes the proposed rule is too broad in its objective, and as a result, credit unions will be unnecessarily limited. Certain products and services, such as auto refinance loans, will be constrained even though they are “not even similar to a payday or small dollar loan.”

There is a lack of clarity, said CUNA, as to what progress the CFPB is trying to make when the proposal covers these credit union products “since credit unions have no history of bad behavior when offering small dollar loans.”

CUNA representatives commented further on how they believe the CFPB has overlooked what credit unions offer to their members, “The proposed rule also does not account for the diverse and unique structure of consumer friendly small dollar loans offered at state-chartered credit unions.”

Additionally, CUNA CEO Jim Nussle has stated having “concerns that the proposal will discourage credit union participation in the NCUA's PAL program because of the additional compliance and regulatory burdens” credit unions will be faced with.

Alongside CUNA, the Michigan Credit Union League is advocating for the CFPB to continue protecting consumers without threatening credit union services, such as payday loans. The League’s Governmental  Affairs department has stated  that an official comment will be sent to the Bureau in September.

*Provided an APR greater than 36 percent and are paid directly from consumer’s account or income or are secured by the consumer’s vehicle.


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