WASHINGTON–Two national consumer groups and two credit unions said NCUA’s new CUSO proposal would allow CUSOs to engage in predatory lending that is explicitly illegal for federal credit unions.
In a joint comment letter, the Center for Responsible Lending (CRL), Self-Help Credit Union and Self-Help Federal Credit Union (Self-Help), and the National Consumer Law Center (NCLC) said NCUA’s CUSO proposal “would do significant harm by permitting high-cost lending to credit union members and consumers. The harm may be especially pronounced for communities of color, which are disproportionately impacted by predatory lending.”
As CUToday.info reported, Proposed Rule, Part 712would expand the powers of CUSOs to originate any kind of loan a federal credit union can make and provides the board additional flexibility in setting related policies. Currently, CUSOs can only engage in four types of loans: Business, consumer mortgage, student loans and credit cards. The NCUA board since 2008 has been considering whether to expand the categories of permissible lending.
The proposed rule would also allow CUSOs to sell and hold all types of loans permissible for FCUs, including participations. Moreover, the proposal is a response to the evolution in digital services, NCUA staff said.
‘Severe Reputation Risk’
The four organizations said NCUA’s proposed expansions would “facilitate lending with annual interest rates above the cap for federal credit unions, which is set at 18% by the Federal Credit Union Act. Thus, the rule appears to allow federal credit unions to participate in lending that the Federal Credit Union Act specifically prohibits -- posing severe reputation risk to federal credit unions as well as legal and compliance risks.
“In the past, some credit unions used CUSOs to make high-cost predatory loans with effective interest rates ranging from 138% to 876%,” the comment letter continues. “In this high-cost lending, lenders are incentivized to make loans borrowers cannot afford to pay off, creating a cycle of harmful debt from which the lender profits. The NCUA proposal would enable this practice.”
Additional Allegations
The comment letter further alleges “exploitative” auto lending would also be facilitated under the proposal, permitting CUSOs to be indirect auto lenders and enabling FCU involvement in subprime auto lending that can reach rates of 30%.
The full comment letter can be found here.
The American Bankers Association has also called on NCUA to drop the CUSO proposal.