Credit Union Group Requests Changes to CFPB Payday Loan Rule
Inside Subprime: March 25, 2019
By Lindsay Frankel
The Credit Union National Association wrote a letter to the Consumer Financial Protection Bureau this week in support of the agency’s proposed delay of the ability-to-repay standards highlighted in the Obama-era payday loan rule. But CUNA also requested that the entire rule, which was intended to go into effect August 19, 2019, be delayed until November of 2020.
CUNA hopes the proposal would give credit unions adequate time to implement the rule and make space for further changes. “Given the Payday Rule’s broad scope and the pending challenge to the rule’s legality in federal court, the Bureau should delay the rule in its entirety rather than merely delaying the ability-to-repay (ATR) provisions that are the subject of the rescission proposal,” the letter reads. “A delay of the entire rule is especially warranted if the CFPB intends to amend other aspects of the rule, such as the payments provisions, in the near term.”
This comes after a December letter CUNA sent to new CFPB director Kathy Kraninger, which urged the bureau to develop broader exemptions for loan products offered by credit unions. In this letter, CUNA also asked the CFPB to assist the NCUA in bringing other small-dollar loan products to market.
The CFPB’s rule governing payday, vehicle title, and certain high-cost installment loans was initially designed to ensure that loans were affordable for consumers, requiring lenders to verify that borrowers are capable of paying back their loans. Pew Charitable Trusts found that payday loans are unaffordable for most borrowers, eating up 36 percent of the average borrower’s paycheck when research shows the average borrower can’t afford to put more than 5 percent towards paying off a loan while keeping up with everyday expenses.
The rule was also intended to prevent certain abusive practices, such as repeated withdrawal attempts from a borrower’s checking account.
CUNA asked that the CFPB revise the rule to fit with the goal of allowing credit unions to provide safe, small-dollar loan products to consumers, while instead focusing on curtailing abusive practices by predatory lenders. CUNA argued that credit unions, as member-owned, non-profit organizations, should be treated as distinct from payday lenders under the rule.
Furthermore, CUNA once again asked that revisions to the rule encourage credit unions to offer safe alternatives to payday loans by “creating an express, broader exemption for credit union products using the Bureau’s exemption authority” and working with the NCUA to keep the rule consistent with the Payday Alternative Loan (PAL) program, including expanding the exemption to accommodate the NCUA’s proposed PAL II program.
The CFPB has made substantial changes to the payday lending rule in the past under advisement from CUNA; the finalized October 2017 rule incorporated suggestions that would allow credit unions to continue to provide options to consumers in the small-dollar lending market.