WASHINGTON–With its 61-page comment letter to the CFPB on its short-term, small-dollar loan proposal now submitted to the agency, CUNA has shared additional details behind the points it makes in its letter, which calls for significant revisions to the rule or, ideally, the exemption of credit unions.
In a conference call with the media, CUNA’s Chief Advocacy Officer, Ryan Donovan, said the CFPB proposal is another example of credit unions being swept up by rulemaking that was brought about by the actions of other bad actors, specifically payday lenders.
The CFPB’s comprehensive proposal marks the first time the agency has put forward a rule proposal under its authority to regulate Unfair, Deceptive and Abusive Practices (UDAAP). Donovan noted the CFPB cited five studies for justification of the rule, and those studies involved little or any cases from credit unions.
He noted credit unions from the writing of the Federal Credit Union Act in 1934 were organized and intended to make the kinds of loans that are being addressed in the CFPB’s proposal.
“In several places in our letter we went to great lengths to explain the important differences between credit unions and non-bank institutions,” said Donovan.
Donovan said CUNA acknowledges there have been abuses in the market, and on several occasions stressed that it is the abusers who should be reined in.
“Our key is asking that the CFPB should withdraw the proposal due to the fatal flaws, or exempt credit unions entirely using their authority under section 1022 of the Dodd Frank Act,” said Donovan.
Absent that, CUNA wants its requested changes to be made and the rule to be re-proposed.
Donovan said the enormous CFPB proposal has numerous “fatal flaws,” the overarching of which is that it is overly broad. He said the rule as written would be “detrimental to programs already seen as consumer friendly.”
Among those programs is NCUA’s Payday Alternative Loan (PAL) program. The CUNA letter goes into “great deal” on NCUA’s PAL program, said Donovan, noting that while the CFPB appears to be attempting to exempt the program, it really just “adds an additional level of burden.”
Another fatal flaw, argued Donovan, is that the CFPB’s own research data and its consumer complaint database do not support “inclusion of credit union products in a rule that addresses abuses in the payday loan market.”
“(CFPB Director) Richard Cordray has said on several occasions that the CFPB is a data-driven organization, and that its consumer complaints database plays a key role in everything it does,” said Donovan. “The CFPB is very transparent in its consumer database. From 2013 until 2016, we found that only four of the 4,493 consumer complaints about a payday loan involved a credit union. That’s four complaints in three years. It really raises the question of where is the problem in the credit union space.”
As has been the case with other rulemakings from the CFPB, CUNA said the risk again is that the proposal sweeps up other types of loans beneath its umbrella, including unsecured and share-secured loans. Among the kinds of loans that will be affected if the rule is enacted as written, said Donovan, are “consumer-friendly auto loan refinances,” new auto loans and credit cards.
“None of these credit union lending products were studied in a sufficient way and there’s no pattern of abuse,” said Donovan. “We think the Bureau should withdraw the proposal and start over. In lieu of that, they have the authority to exempt credit unions and should do that. It is indisputable that the CFPB has the statutory authority to exempt credit unions. The plain language of the Dodd-Frank Act could not be any clearer on this authority.”
Donovan said CUNA’s position is that exempting credit unions from that proposal would ensure that consumers have safe and affordable access to credit as supported by CUs, would support Cordray’s goal of not affecting CUs, and would focus the impact on the “real bad guys.”
Credit unions and their trade associations have been providing feedback to the CFPB and asking for exemptions since the agency’s inception five years ago. Asked by CUToday.info to rate his level of confidence the CFPB will respond favorably, Donovan responded, “We’ve seen in previous rulemakings where we have asked for exemptions and accommodations and the CFPB has responded in some way. It’s not always been fully satisfying.”
One example, said Donovan, was the agency’s Qualified Mortgage rule.
“If we don’t advocate and express our views they are not going to move at all,” said Donovan. “So we have to continue to do that.”
The CFPB has indicated it hopes to have the new proposal finalized by the summer of 2017, but CUNA said that schedule sounds “pretty ambitious” given the size of the proposal.