WASHINGTON–CUNA has filed a 61-page comment letter with the Consumer Financial Protection Bureau regarding its proposed rule on short-term, small-dollar loans.
The trade group argues the proposal could rob consumers of safe and affordable alternatives to the predatory lenders in the market.
In its comment letter, which also includes an additional 21-page legal support letter from the Dentons US LLP, CUNA calls on the CFPB to withdraw its proposal or exempt credit unions as a class due to the many consumer dangers in the proposed rule. In lieu of that, CUNA is asking the Bureau to consider addressing the substantial shortcomings of the proposed rule with several recommendations outlined in its letter, and asks the CFPB to publish a revised proposal for public comment (see related story).
“The rule is overbroad and misses the mark of enhancing consumer protections because it fails to consider consumers’ needs, particularly those of modest means with financial challenges, and does not provide a clear and concise path to allow credit unions to meet these needs,” said Jim Nussle, president/CEO of CUNA, in a statement. “The rule would have a detrimental impact on credit union programs that are widely recognized as being consumer-friendly, even by the CFPB itself. This does not achieve greater protection for members, but instead will limit their options and could force them to turn to much worse options.”
CUNA noted that it and the state leagues have met repeatedly with the CFPB on this issue regarding their concern over a credit union member’s ability to have safe and affordable credit options.
Among the problems with the proposed rule identified by CUNA are:
- CFPB did not take into account the unique way credit unions operate in this market, nor did they consider the existing regulatory oversight that provides significant consumer protection.
- Credit unions typically offer these as a member service and their income is strikingly low or in many instances done at a loss.
- CFPB only provided a limited conditional exemption for NCUA’s PAL program which has been widely recognized as a model for consumer friendly lending. The proposed rule imposes significant additional regulatory requirements on and prohibitions to credit unions originating loans under existing NCUA PAL programs.
- While CUNA supports curbing the abuses in the market, CFPB must do so in manner that maintains credit availability to meet consumer demands. Otherwise only those that choose to engage in predatory behavior and otherwise skirt the law will be the sole source for consumers.
- While the rule was written to target abuses in the payday lending market, the rule could sweep in numerous other products by credit unions where there is no evidence of abuse by credit unions (auto refinances, auto purchases, credit cards, etc…)
- The underwriting requirements for a small $100 loan are in some instances more onerous than that of a $500,000 mortgage.
CUNA is advocating the CFPB should withdraw the rule; or provide a blanket exemption for credit unions (including PAL loans). Absent the foregoing, the Bureau should make significant changes to the rule and re-propose it for public comment.