Credit Unions Request Exemption from CFPB Payday Loan Rule

Inside Subprime: July 8, 2019

By Grace Austin

The Consumer Financial Protection Bureau’s controversial payday loan rule is producing disagreements from several credit union advocacy groups with differing approaches. 

Those credit union trade groups are looking to distance themselves from payday loan firms, which are viewed by consumer advocates, some faith leaders and numerous lawmakers at the state and federal level as abusive and predatory. Payday loans are known for their high-interest rates, short terms and the frequency with which borrowers became trapped in cycles of debt. 

Comments on the CFPB payday lending rule were due in May 2019. Thousands of comments have poured into the CFPB’s website. 

As recent Credit Union Times analysis states, now credit union trade groups are differing on how broad that exemption should actually be. 

The Credit Union National Association recently submitted comments on the CFPB’s proposal to rescind the “ability to pay” part of its strict 2017 payday loan rule. That provision keeps lenders from extending loans to borrowers that can’t pay them back, and was a hallmark of former director Richard Cordray’s tenure as head of the CFPB. CUNA is asking for all credit unions’ small-dollar loans to be free from CFPB regulation. That’s because some credit unions create their own loan programs to offer to consumers. 

Another trade group, the National Association of Federally-Insured Credit Unions, wants a more specific exemption: all loans made under the federal agency National Credit Union Administration’s Payday Alternative Loan program. In its comment letter, the trade group wrote that loans modeled after the PAL program are exempt under the 2017 rule.

However, the NCUA is working on another PAL loan program currently. While the NCUA hasn’t provided the latest, final PAL guidelines, the NAFCU wants that new PAL program to be exempt as well.

The differing approaches originates from the fact that some credit unions offer short-term loans that aren’t modeled on the PAL program. 

Two of the credit union groups did ask for an exemption to the key ability to pay provision, based on arguments that credit unions overall are not predatory to borrowers and that consumers need to have access to secure and low-cost loans. 

“We maintain that credit unions’ history of consumer protection when offering these services warrant the Bureau providing this accommodation,” said Alexander Monterrubio, CUNA’s senior director of advocacy and counsel, as reported in the Credit Union Times.

Meanwhile, some other credit unions want the CFPB to keep the ability to pay provision, saying it will keep bad actors like payday loan firms in check. 

Still, it will remain to be seen if credit unions and more traditional banking will be exempt from these rules, or if they will be grouped broadly with other lenders like those that extend payday loans.  

Learn more about payday loans, scams, and cash advances by checking out our city and state financial guides, including Florida, Illinois, Chicago, Ohio, Texas, and more.