WASHINGTON—Concerned that the CFPB’s payday lending proposal will hinder the ability of state chartered credit unions to administer innovative short-dollar loan programs, NASCUS is urging the CFPB to provide compliance exemptions for states that have in place “comparable regulation” to avoid increasing the regulatory burden on an “already heavily regulated class of entities.”
In a comment letter to the Bureau signed by Nichole Seabron, NASCUS’ legislative and regulatory counsel, the association stated that the Bureau’s proposal would require lenders, among other things, to engage in an Ability to Repay (ATR) analysis, which would require credit unions to complete a more comprehensive underwriting process than the streamlined process most commonly used for such short term, small dollar credit.
NASCUS noted that a more extensive underwriting process would result in higher costs for the lender, which would then have to be passed on to the consumer or could result in the termination of the credit union’s short term, small dollar lending program.
“We do note that the Bureau provides lenders that wish to engage in this business with alternatives to the ATR requirements. For example, the proposal provides a ‘conditional exemption’ from the ATR requirements for short term, small dollar loan programs that mirror certain attributes of NCUA’s PAL or ‘payday alternative loan’ program,” wrote Seabron. “However, data shows that only a small number of Federal credit unions have opted to utilize the PAL program. In 2015, approximately 20% of federal credit unions offered NCUA’s PAL program. Additionally, a recent report (issued by the Pew Charitable Trusts) noted that it was unlikely that the PAL or similar programs would see a large degree of expansion among lenders due to the restrictive nature of the program and the limited revenue available from this type of loan. Likewise, doubts have been raised about the feasibility of the portfolio default rate alternative provided in the proposal.”
Seabron stated that the State system has a history of encouraging innovation in consumer financial product/service development while maintaining safe and sound business practices.
“Many states currently have consumer protection regulatory schemes in place to address bad actors and encourage provision of fair and reasonably priced short term consumer credit. . . We encourage the Bureau to provide a compliance exemption for states that have in place comparable regulation to avoid placing undue and duplicative regulatory burden on an already heavily regulated class of entities,” wrote Seabron. “Finally, the Bureau should be prepared to address anticipated state requests for inconsistency determinations regarding their existing short term, small amount dollar regulations . . . We strongly suggest that the Bureau issue a final rule that will be less complex, less restrictive and that will provide depository institutions with the flexibility to continue to develop short term, small dollar products that are consumer friendly and that fill a significant consumer need.”