ALEXANDRIA, Va.–NCUA Chairman Rick Metsger says NCUA’s payday alternative loan rules already protect consumers, and he is asking the Consumer Financial Protection Bureau to fully exempt these loans from its final payday lending rule.
In a letter to CFPB, Metsger said payday alternative loans offered by federal credit unions are “a safe, more affordable product” than typical payday loans, which can saddle consumers with unmanageable debt.
“We respectfully request the Bureau exempt FCUs completely from its final rule for loans made under and consistent with NCUA’s PALs regulation,” Metsger said in the letter. “As the prudential regulator for federal credit unions, NCUA already ensures that members receive the type of protections the Bureau is seeking to address. The Bureau should therefore defer to determinations of the FCU prudential regulator about this product.
“The National Credit Union Administration fully supports the goals of the proposed rule,” Metsger continued. “NCUA continues to review its existing regulations and may consider enhancements to the PALs regulation. Additional rules from sister agencies will unnecessarily increase compliance burdens.”
Metsger said CFPB has acknowledged it “has not observed evidence that lenders making loans under the NCUA program participate in widespread questionable payment practices.”
In a statement, NCUA noted that in 2010 it approved a payday alternative loan rule that included, among other conditions:
- Loans may be for $200 to $1,000 to borrowers who have been credit union members for at least one month;
- Terms of one to six months;
- A maximum $20 application fee;
- No rollovers are allowed; and
- An interest rate of up to 28% APR if all other conditions are met.
The Consumer Financial Protection Bureau in June issued its proposed rule to regulate loans with terms of less than 45 days and those with terms longer than 45 days that have annual percentage interest rates greater than 36% and are either paid from a consumer’s account or income or are secured by the consumer’s vehicle. The proposed rule also covers some longer-term loans at less than 36% interest and includes only a conditional exemption for loans under NCUA’s PALs regulation.
In response to NCUA’s letter, Jim Nussle, CUNA president/CEO, said, “The CUNA/league system appreciates NCUA weighing in on this important matter and standing up for the needs of credit union members across the country. According to NCUA federal credit unions issued almost $125 million in PAL loans just in 2015, which showed an increase of 7.2% from the fourth quarter of 2014. We agree with NCUA that the Bureau should consider a complete PALs exemption in their final payday lending rule, so as not to impede this important growth and service to members. We also appreciate the NCUA’s recognition and education of the CFPB that other conditional exemptions and parts of the CFPB’s proposal are not workable for credit unions, and that the CFPB’s proposal needs reform to ensure that credit union members can continue to rely on credit unions for safe and affordable alternatives.”
Comments on the proposed rule are due by Oct. 7.
NAFCU thanked NCUA for the letter.
“NAFCU appreciates Chairman Rick Metsger and Board Member J. Mark McWatters’ support of credit unions and their responsible lending practices, and we thank Chairman Metsger for reaching out to CFPB to avoid regulation that would surely hamstring credit unions’ efforts to lend,” said Director of Regulatory Affairs Alexander Monterrubio. “Credit unions cannot be expected to offer their members the same excellent products and services while also facing inconsistent regulation from multiple regulators. CFPB must provide an explicit exemption for credit unions in the final rule in order to avoid punishing good actors along with bad.”