“We believe it would be reasonable for the Department to exempt from coverage PALs made by FCUs in compliance with NCUA's PALs regulation. The 28% rate cap applicable to PALs includes all finance charges, as defined under Regulation Z,” Matz wrote in a comment letter to Aaron Siegel, DoD Alternate Office of the Secretary of Defense Federal Register liaison officer.

“Further, the FCU Act and NCUA's PALs regulation provide other meaningful protections for borrowers, including a prohibition of prepayment penalties and rollovers. Therefore, NCUA recommends that the Department exempt PALs from coverage by the Proposed Rule, in order to preserve a viable alternative to predatory payday loans,” Matz added.

The American Bankers Association, Independent Community Bankers of America, NAFCU, Association of Military Banks of America and Consumer Bankers Association also wrote a comment letter containing a series of observations and recommendations about the proposal.

The groups said the proposal presents risks and costs for every depository institution, even if their products would comply with the regulation.

“If the regulation is expanded as proposed, the greatly increased volume of inquiries to the Department's database, which today is frequently unavailable, will cause consumer credit lending to come to a halt when the database is unavailable,” the letter said.

The groups said the DoD should expand coverage as needed to address efforts at evasion, but in a targeted fashion, consistent with the history and intent of the legislation.

The department should also exempt depository institutions from the regulation, including the military annual percentage rate component, to ensure military personnel and their spouses and dependents continue to have access to mainstream products, according to the groups' letter.

The groups said the department has not identified any data that demonstrates products currently offered by depository institutions, including credit cards, share the characteristics of predatory loans Congress the DoD intended to target as problematic for military families.

“Depository institutions are regularly examined for compliance with consumer protection laws, and banking agencies have exhibited their willingness and aggressiveness in addressing depository institution products they believe may be harmful to consumers, particularly military customers,” the letter said.

According to the trade groups, the department “grossly underestimates” the costs of the proposed regulation.

“Costs are underestimated because it has overlooked many of the depository institutions' products that the regulation will now capture,” the letter said.

The groups said the analysis neglects many of the up-front costs but especially the continuing costs of compliance.

“[And the analysis] underappreciates the culture of compliance in depository institutions that strives for zero tolerance in violations and that demands an associated caution when implementing regulations, a sensitivity made more acute because of the consequences for a MLA violation,” the groups wrote.

A CUNA spokesperson told CU Times the association plans to issue a comment letter on the proposal before the end of the year.